U.S. stocks closed at new peaks on Friday, powered by cooler inflation data that strengthened expectations for more interest rate cuts from the Federal Reserve. The Dow Jones Industrial Average jumped 472 points, or just over 1%, closing above 47,000 for the first time ever at 47,207. The S&P 500 rose nearly 0.8% to 6,791, and the Nasdaq gained 1.15% to finish at 23,205. All three major indexes ended at record highs, capping their second straight winning week.
Inflation data supports Fed easing
The September consumer price index rose 0.3% on the month and 3% on an annual basis, both slightly softer than economists had forecast. Core CPI, which excludes food and energy, was also below expectations at 0.2% for the month and 3% year-on-year. Markets interpreted the report as giving the Fed cover to stay on its rate-cutting path, despite the headline rate ticking up from the prior month. With jobs and other economic data still delayed by the government shutdown, the Fed faces little reason to deviate from its easing stance. Traders are now assigning more than 95% odds to cuts at both the Fed’s November and December meetings.
Bank stocks lead the rally
Financials led the charge as lower borrowing costs promise to stimulate activity. JPMorgan, Wells Fargo and Citigroup all climbed around 2%, with Goldman Sachs and Bank of America also advancing. Investors welcomed the prospect of looser monetary conditions that could underpin lending growth and valuations across the sector.
Local outlook
Looking ahead, Wall Street’s rally is set to lift Australian equities when trading resumes. Futures point to a 26-point, or 0.3%, rise for the ASX 200 at Monday’s open, to 9061. Attention will quickly turn to the September quarter CPI report on Wednesday, a decisive input for the Reserve Bank’s next move. RBA Governor Michele Bullock is also due to speak Monday evening in her last public remarks before the board meets next week.
Central bank-heavy week ahead
Beyond Australia, the European Central Bank, Bank of Canada, and Bank of Japan all meet this week. Of the three, only Canada is expected to ease further, trimming its policy rate to 2.25%. Analysts say Fed Chair Jerome Powell’s press conference on Wednesday will be closely watched, with expectations he will leave the door open to another cut in December.
