Investors spent Friday morning digesting an inflation report that was warmer than they had hoped for.
The September consumer price index showed core inflation, which strips out volatile food and energy prices, running hotter than economists had expected. That matters because the Federal Reserve has been watching inflation data closely to decide how much further it can cut interest rates without reigniting price pressures. A hot reading makes it more likely the central bank keeps rates restrictive for longer, which is why futures tied to the S&P 500, Dow, and Nasdaq all pointed to only a modest, cautious open Friday after the data landed, with the mood described by one market report as risk off.
That caution followed a solidly positive session on Thursday. The Dow Jones Industrial Average closed at 52,177.69, up 556 points, or just over one percent. The S&P 500 finished at 7,744.06, up about a third of a percent, while in Asia the Nikkei 225 jumped nearly two percent to close at 65,512.00. In Europe, Germany's DAX added roughly a third of a percent to 25,382.62, while the Euro Stoxx 50 slipped slightly. Alongside the broader rally, one notable pocket of weakness emerged: chipmakers and other AI-linked stocks came under pressure as the inflation data fed worries that higher for longer rates could cool the AI investment boom that has powered much of this year's market gains.
Treasury yields, which rise when investors expect rates to stay higher for longer, had also been a focus this week, with a pullback in yields late in the week helping some beaten down shares recover in markets outside the U.S., including in Asia.
Watch how the Fed's policymakers characterize the inflation data in upcoming public remarks, and whether chip and AI related stocks stabilize or extend their pullback into next week.
Why does core inflation matter more to markets than headline inflation?
Core inflation strips out volatile food and energy prices, giving the Federal Reserve a steadier read on underlying price pressure when deciding on interest rates.
Why did AI and chip stocks fall even as major indexes rose?
Investors worried that if the Fed keeps rates higher for longer, it could slow the heavy spending that has been fueling the AI investment boom.