CPI Numbers Come in Cooler

Pre-market futures had rocketed higher upon the long-awaited release of the Consumer Price Index (CPI) report this morning, which actually showed inflation metrics tick DOWN slightly, instead of work their way higher, as they had done in previous months. The Dow moved from +87 points immediately ahead of the release to +210 points now, the S&P 500 went from +23 to +41, and the Nasdaq shot up from +125 points to +222 points at this hour.

Market participants had been trusting economic figures to remain subdued during these 3 1/2 weeks of a government shutdown, and their wish came true with September CPI numbers this morning: -10 basis points (bps) on CPI month over month (+0.3% vs +0.4%) and core month over month (+0.2% vs +0.3%). Headline CPI on a monthly basis has had a tendency to bounce around a bit lately — August was +0.4%, May -0.1% — but the yearly numbers have told a different story.

The Inflation Rate (CPI year over year headline) ticked up to +3.0% for the first time since January, but 10 bps lower than anticipated. And core CPI year over year came down (10 bps to +3.0%) for the first time since May. We haven’t seen an Inflation Rate above +3% since May of 2024 — when numbers were moving downward at a steady clip. But on core — stripping out volatile food and energy prices — this is the first downward move since March of this year.

The bottom line is this: inflation looks softer on this metric. This will make it easier for the Fed to cut rates 25 bps next week, and forecast another cut at its final meeting of 2025. Should these cuts come to pass, we’ll be 3.50-3.75% as of December — the lowest level in three years. This is not only helping market futures rise but bond yields come down 20 bps from a month ago.

Quarterly Earnings at a Glance: P&G, General Dynamics & More

Quickly, we see more earnings reports of note this morning to finish the trading week. Procter & Gamble PG beat expectations on fiscal Q1 earnings by 9 cents (+4.74%) to $1.99 per share, and the stock is up +2.7% in this strong pre-market.

Military equipment major General Dynamics GD took its Zacks Rank #3 (Hold) rating into today’s Q3 report and beat on earnings by +4% — $3.88 per share versus $3.72 in the Zacks consensus. Shares are up +4.25% on the news thus far.

Even more impressive this morning is the Q3 earnings report from HCA Healthcare HCA this morning. Earnings of $6.96 per share swept past the $5.65 expected, for a +23.2% positive surprise. Shares of the mid-level hospital operator qare up +4.35% in today’s pre-market.

What to Expect from the Market Next Week

This morning’s CPI data reinforced the notion that the Fed is going to cut interest rates next week by 25 bps to below 4% for the first time in three years. It would be hard to come up with a stronger narrative ahead of next week than that. Had CPI data come in hotter than expected, no doubt we’d be focusing on what Fed Chair Jerome Powell & Co. must be considering.

Q3 earnings season hits full throttle next week, peaking mid-week with over 300 companies posting quarterly numbers Wednesday and even more on Thursday. Among these will include “Mag 7” members Microsoft MSFT, Alphabet GOOGL — both Wednesday after the close — and Apple AAPL and Amazon AMZN Thursday afternoon.

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This article originally published on Zacks Investment Research (zacks.com).

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