U.S. stocks ended last week at record highs, setting the stage for a packed week of earnings and a key policy decision from the Federal Reserve. Cooler inflation figures boosted confidence that the central bank will stick to its rate-cutting path, providing a tailwind for equities and keeping valuations elevated.
The Dow Jones Industrial Average climbed 472.51 points, or 1.01%, to 47,207.12 on Friday, closing above 47,000 for the first time. The S&P 500 rose 0.79% to 6,791.69, while the Nasdaq Composite added 1.15% to finish at 23,204.87. All three indexes hit fresh all-time highs.
September’s consumer price index increased by 0.3% month-over-month and 3% year-over-year, undershooting economist expectations of 0.4% and 3.1%. Core CPI, which strips out food and energy, rose just 0.2% on the month and 3% annually, also below forecasts.
The inflation report — delayed because of the U.S. government shutdown — propelled the major indexes to their second straight week of roughly 2% gains. Year-to-date, the S&P 500 is up 15% and the Nasdaq 20%.
Following the softer data, traders strengthened their bets on two additional rate cuts in 2025, starting with an expected 25-basis-point reduction to a 4.00%–4.25% range on Wednesday. Markets will be watching Chair Jerome Powell closely for any hints on whether further easing in December is on the table.
The Fed’s decision is complicated by a data drought caused by the October 1 shutdown, which has held up several key reports, including labor market figures.
“Inflation coming in below expectations has increased optimism for additional Fed rate cuts, leading to a decline in bond yields. Nevertheless, there are ongoing concerns about how the effects of tariffs might influence the inflation outlook in the months ahead,” JPMorgan strategists led by Mislav Matejka said.
Magnificent 7 Earnings Take Center Stage
The upcoming week could determine whether the market’s rally can keep momentum through year-end. Earnings season is off to a strong start: of 143 S&P 500 companies that have reported so far, earnings are up 10.4% from last year, according to LSEG IBES.
Roughly 87% of companies have topped profit estimates and 82% beat on revenue — both above historical averages.
“The standout this reporting season, thus far, for the S&P has been the revenue beat rate— 2-3%; double the historical run rate,” said Michael Wilson, strategist at Morgan Stanley. “It’s early in earnings season, but this could be an initial indication that top line growth is firming into next year, in line with our view.”
This week brings the most intense earnings schedule of the quarter. Tech giants Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) — five members of the “Magnificent Seven” — are all set to report.
Earnings are also expected from Eli Lilly and Company (NYSE:LLY), energy majors ExxonMobil (NYSE:XOM) and Chevron Corporation (NYSE:CVX), and payment leaders Visa Inc. (NYSE:V) and Mastercard Incorporated (NYSE:MA).
What Analysts Are Saying
Morgan Stanley: “We have high conviction in our rolling recovery thesis, which remains out of consensus. We expect the uptrend in earnings revisions breadth to resume into YE/2026. 3Q earnings season provides a strong stock-picking environment.”
RBC Capital Markets: “We think earnings are providing a solid foundation for the US equity market, but that it will be difficult to replicate the same kind of surge in earnings optimism that helped power markets higher in the last reporting season. That is something we think the deterioration in the rate of upward EPS revisions speaks to. Additionally, if we continue to see deterioration in the rate of upward revisions for the broader indices and the heaviest market cap names in particular, we think it could be a contributing factor to a garden-variety pullback in the S&P 500, which still remains a risk for equity markets – though perhaps not one that materializes until downward revisions return for the S&P 500 itself.”
Evercore ISI: “In longer-term Strategy, the AI-driven Bull market and our S&P 500 YE 2026 price target of 7,750 remains intact – market volatility seen in recent weeks is not only consistent with historical Fall seasonality, but also a feature of Tech driven Bull markets, the Nasdaq experienced multiple -10% or more corrections during the Dotcom Era. Stock turbulence has thus far been short lived, with favorable November-December seasonality ahead. Tax Loss Harvest season can help set the table for Holiday Cheer as incremental selling pressure subsides and investors ‘go shopping’ for ‘discounted bargains’.”