Wall Street Rally Accelerates as Core PCE Reinforces Fed Cut Odds

Markets rallied as investors absorbed a long awaited inflation reading that boosted hopes for imminent Fed easing. The Bureau of Economic Analysis reported core Personal Consumption Expenditures inflation at 2.8 percent year over year for September, a measure the Federal Reserve closely monitors and a figure that came in slightly below consensus. The release was delayed by 43 days after a government shutdown paused routine data flows, concentrating market attention on a single inflation snapshot.

Fed funds futures moved quickly to reflect the data, pricing roughly an 87 percent probability of a 25 basis point cut by the Federal Open Market Committee at its upcoming meeting. Equity benchmarks advanced at the time of reporting with the Dow up 0.49 percent, the S&P 500 up 0.46 percent and the Nasdaq up 0.56 percent as investors rotated into assets perceived to benefit from lower rates.

The University of Michigan consumer survey provided supporting context by showing easing one year inflation expectations among consumers, a signal markets interpreted as consistent with cooling price pressures. Small cap stocks outperformed as traders shifted into companies more sensitive to the cost of capital, while selective sector moves reflected company specific news and shifting rate expectations.

Warner Bros. Discovery shares rallied after news of a deal with Netflix, a development investors viewed as validation of content monetization strategies amid a consolidating media landscape. Hewlett Packard Enterprise underperformed after management flagged weaker than expected AI server revenue guidance, a reminder that corporate earnings and capex outlooks can complicate markets even as central bank policy softens.

The data tightens a policy debate at the Fed where officials are weighing the risk of premature easing against the economic benefits of lower rates. A core PCE reading below recent prints provides ammunition for policymakers who favor cutting to support growth, yet the level remains well above the Fed's 2 percent goal and leaves room for caution if services inflation or wage trends prove persistent.

For markets, the immediate implication is a repricing of the terminal path for rates and a greater appetite for equities and rate sensitive sectors. Small caps and certain cyclical industries often regain appeal when market participants anticipate lower policy rates, while high growth technology names may be supported by lower discount rates even as idiosyncratic earnings risks remain.

Looking ahead, investors will watch upcoming data flows that had been delayed by the shutdown and the Fed's own communications for confirmation that disinflation is durable. A single softer PCE print nudges markets toward easier policy, but sustained progress toward the 2 percent target will depend on a broader set of readings on services inflation, wage growth and consumer demand in the months to come.