Cooler Inflation Sparks Market Rally, Fed Rate Cut Hopes

The September Consumer Price Index report delivered exactly what markets had been hoping for, with headline inflation cooling to 3% annually, below the 3.1% consensus estimate. The core CPI reading, which excludes volatile food and energy components, showed an even more encouraging picture with a 0.2% monthly gain and annual rate of 3%, both coming in below expectations of 0.3% and 3.1% respectively. This marked the second consecutive month of better-than-expected inflation data, reinforcing the disinflationary trend that has been building throughout 2024.

The significance of these numbers extends beyond mere statistical beats. With inflation now consistently trending toward the Federal Reserve’s 2% target, the data strongly suggests the central bank could begin cutting interest rates at its two remaining meetings this year. The cooler inflation readings remove a key barrier to monetary policy easing, potentially unlocking lower borrowing costs for consumers and businesses alike. Market participants immediately began pricing in higher probabilities of rate cuts, with the S&P 500 responding positively to the prospect of reduced pressure on corporate earnings and economic growth.

While macroeconomic conditions set the stage, corporate earnings provided the substance behind the market’s upward move. Intel delivered a standout performance, reporting third-quarter revenue of $13.65 billion that comfortably exceeded expectations of $13.14 billion. More impressively, the chipmaker reported net income of $4.1 billion, or 90 cents per share, representing a dramatic turnaround from the $16.6 billion net loss reported in the year-ago quarter. This return to profitability prompted Morgan Stanley to reiterate its equal weight rating while acknowledging the encouraging earnings performance.

Consumer staples giant Procter & Gamble complemented the technology sector’s strength with its own beat, posting adjusted earnings per share of $1.99 versus the $1.90 estimate. Revenue of $22.39 billion also topped expectations of $22.18 billion, demonstrating that consumer resilience remains intact despite earlier concerns about spending pullbacks. The combination of strong results across both cyclical and defensive sectors provided broad-based confirmation of corporate health, giving investors confidence that the earnings recovery has solid foundations.

Analyst activity reflected the growing optimism surrounding technology companies, particularly those positioned to benefit from artificial intelligence trends. KeyBanc Capital maintained its overweight rating on Amazon with a $300 price target, emphasizing that Amazon Web Services “has still been growing absolute revenue dollars near or better than competitors.” The firm specifically highlighted Project Rainier, Amazon’s gigawatt data center clusters, and partnerships with customers like Anthropic as potential drivers of revenue acceleration into 2026, stating they “would be surprised if AWS was left behind in the AI revolution.”

JPMorgan delivered a significant upgrade for Coinbase, moving the cryptocurrency exchange to overweight from neutral and raising its price target to $404 from $342. The upgrade cited Coinbase’s exploration of launching a potential Base token, which analysts believe could accelerate growth on the Base blockchain launched in August 2023. Meanwhile, Jefferies reiterated its buy rating on Microsoft ahead of next week’s earnings, anticipating strong performance driven by Azure cloud services, M365 productivity suite, robust bookings growth, and the company’s expanding artificial intelligence contributions.

This concentrated analyst optimism across multiple technology sub-sectors—cloud computing, blockchain, and artificial intelligence—suggests institutional confidence that the digital transformation trend remains intact despite macroeconomic uncertainties. The coordinated bullishness from multiple major financial institutions creates a compelling narrative for continued technology leadership in the current market environment.