US Markets Rally in Unison on Inflation Slowdown

US stock markets hit record highs powered by lower-than-expected inflation data. The Dow Jones Industrial Average closed at 47,207.12 on Thursday (local time), up 472.51 points (1.01%), breaking through the 47,000 level for the first time in history.

The S&P 500 rose 0.79% to 6,791.69, while the Nasdaq Composite surged 1.15% to 23,204.87. All three major indices recorded historic highs, extending their winning streak to two consecutive weeks.

September CPI Falls Below Expectations, Strengthening Rate Cut Expectations

The September Consumer Price Index (CPI) released by the US Bureau of Labor Statistics rose 0.3% month-over-month and 3% year-over-year. These figures came in below the Dow Jones economist consensus of 0.4% and 3.1%, respectively.

Core CPI (excluding food and energy) increased just 0.2% monthly and 3% annually. These also fell short of expectations of 0.3% and 3.1%. This was a closely watched indicator as its release had been delayed due to the government shutdown.

Following the CPI release, the probability of a December rate cut jumped to 98.5% according to CME FedWatch. This represented a 7.5 percentage point increase from the 91% level before the announcement. The likelihood of a rate cut next week also remained above 95%.

Financial Stocks Surge on Rate Cut Expectations

Rate cut expectations served as a tailwind for financial stocks across the board. JP Morgan, Wells Fargo, and Citigroup each rose 2%, while Goldman Sachs and Bank of America also posted gains.

Lindsay Rosner, Head of Multi-Sector Fixed Income Investing at Goldman Sachs Asset Management, noted, "Today's positive CPI report gave the Fed no cause for concern," adding, "Further easing is expected at next week's meeting, with a high likelihood of a December cut as well."

She added, "With limited economic data currently available, there's no reason for the Fed to deviate from the path outlined in its dot plot."

Trump Tariff Comments Have Limited Market Impact

President Donald Trump's statement that he would halt trade negotiations with Canada had little effect on markets. The comment came in response to an advertisement run by Ontario citing former President Ronald Reagan's 1987 statement that "tariffs harm American workers and consumers in the long run."

Ontario Premier Doug Ford announced he would discontinue the ad after the World Series weekend games and resume trade negotiations.

Year-to-Date Returns: S&P 500 Up 15%, Nasdaq Up 20%

Year-to-date, the S&P 500 has risen 15% and the Nasdaq 20%, maintaining strong upward momentum. The combination of slowing inflation and the Fed's accommodative monetary policy stance appears to have improved investor sentiment.

However, the government shutdown has delayed the release of key economic data including weekly and monthly employment figures, limiting the ability to assess the economic outlook going forward.