Wall Street breathed a collective sigh of relief on September 26, 2025, as the latest inflation data landed precisely where economists had forecast, lifting major U.S. stock indexes and easing fears of a surprise spike in consumer prices. The personal consumption expenditures (PCE) report, the Federal Reserve’s preferred inflation gauge, showed headline inflation rising 0.3% month-over-month in August—translating to a 2.7% annual rate, with core inflation at 2.9% year-over-year. While still above the Fed’s 2% target, the figures offered reassurance that inflation wasn’t accelerating out of control, calming nerves on Wall Street and in Washington alike, according to Reuters and the Associated Press.
Markets responded swiftly. The S&P 500 and Dow Jones Industrial Average each climbed approximately 0.5% by early afternoon, while the Nasdaq edged up about 0.4%, recouping some ground after a three-day slide. Four out of every five S&P 500 stocks advanced, pushing the index near its all-time highs set earlier in the week. The Dow gained 211 points, or 0.5%, as of midday, while the Nasdaq lagged slightly due to lackluster performance from a handful of influential Big Tech stocks, AP reported.
In the bond market, the 10-year Treasury yield held steady at 4.18%, and the 2-year yield hovered around 3.65% after the PCE data release. These stable yields signaled market relief that there was no upside inflation shock, as futures ticked higher in response to the news. "This should give some reassurances on the inflation side," said Doug Beath of Wells Fargo Investment Institute, echoing the mood of many investors (Reuters).
Consumer spending remained robust in August, supporting the Bureau of Economic Analysis’s upward revision of Q2 GDP to a 3.8% annualized pace. As Gennadiy Goldberg of TD Securities put it, "Net-net, the data show consumers continue to spend and the economy may not be slowing as quickly as anticipated" (Reuters). This resilience complicates the Fed’s job—growth is strong, but inflation is easing only gradually—yet it also bolsters corporate revenue projections heading into the final quarter of the year.
With inflation behaving as expected, attention quickly turned to the Federal Reserve’s next moves. Swaps markets priced in about 20 basis points of easing for October and roughly 38 basis points by year-end, suggesting a modestly dovish path compared to earlier in the week (Bloomberg). The curve is now positively sloped, with the 10-year yield above the 2-year, and Fed officials are signaling a delicate balance between jobs and inflation risks. Richmond Fed President Thomas Barkin summed up the uncertainty, admitting he has "very low confidence in inflation forecasts right now" (Reuters).
Peter Cardillo of Spartan Capital added, "Inflation remains sticky, but it’s not accelerating in a way that would block at least one more cut this year" (Reuters). The Fed had already delivered its first rate cut of 2025 the previous week, and while more are penciled in through 2026, Chair Jerome Powell has warned that plans could change quickly if inflation surprises to the upside.
On the policy front, the White House jolted markets late Thursday by announcing a new round of tariffs set to take effect October 1. The measures include a 100% tariff on branded and patented drug imports, 25% on heavy trucks, and 30–50% on furniture and cabinets, with carve-outs for firms building U.S. plants (Reuters, AP). The details were sparse, leaving analysts uncertain about the full impact. However, the announcement rippled through the market: truck maker Paccar, which has a strong domestic footprint, surged 5%, while home furnishing companies like Williams-Sonoma and RH swung between gains and losses, ultimately ending the day lower. Pharmaceutical giants Eli Lilly and Pfizer nudged higher, and AstraZeneca responded by slashing certain U.S. drug prices and launching direct-to-patient sales to sidestep the tariffs (Reuters).
International reaction was swift. The European Union and Japan pointed to July agreements that effectively cap pharma tariffs well below 100% for their exporters, limiting the direct fallout for their industries (Reuters). Meanwhile, the broader market impact was more muted than some had feared, with analysts noting that the announcement created ripples rather than waves.
On the sector front, Intel and GlobalFoundries both rallied on news of chip-related investments and potential new U.S. rules to reduce overseas reliance. Boeing shares also gained after reports indicated the Federal Aviation Administration would partially restore "ticketing" authority for some 737 MAX and 787 airworthiness certificates starting next week (Reuters). In the energy sector, crude oil prices headed for their biggest weekly gain in roughly three months, driven by Russian fuel export curbs—a development that boosted energy equities and reinforced inflation-sensitive narratives (Reuters).
Despite the bounce, some clouds lingered. The S&P 500’s forward price-to-earnings ratio remained elevated at around 22.6 to 22.8, well above its 5- and 10-year averages (FactSet). Wall Street’s ongoing debate centers on whether corporate earnings can grow fast enough to justify these lofty valuations. FactSet’s latest forecast calls for Q3 2025 S&P 500 earnings per share growth of 7.7% year-over-year and revenue growth of roughly 6.3%, with the IT sector leading the charge.
But not everyone is convinced the rally is built to last. As Axios reported, strategists are split between those urging investors not to "miss the rally" and those warning that markets are entering "bubble territory." Jay Hatfield remarked, "If you’re first, bubbles don’t matter," while Jay Goldberg countered, "We are getting into bubble territory." The split highlights the nervous optimism that currently defines 2025’s market landscape.
Costco, often viewed as a bellwether for consumer sentiment, reported mixed results for its latest quarter. While the company delivered solid top- and bottom-line numbers, same-store sales fell short of analyst expectations and membership renewal rates slowed, sending shares down 1.9% (AP).
Internationally, markets were mixed: France’s CAC 40 climbed 0.9%, but South Korea’s Kospi dropped 2.5%, and Japan’s Nikkei 225 fell 0.9%, reflecting divergent regional trends (AP). Back in the U.S., a University of Michigan survey found that consumer sentiment was weaker than expected, with households frustrated by high prices. However, inflation expectations for the next 12 months ticked down slightly to 4.7%, from 4.8%. Notably, sentiment among Americans with substantial stock investments held steady, while it declined for those with smaller or no holdings.
Looking ahead, investors are bracing for the next major catalyst: the government’s jobs report, which could be delayed by a looming shutdown. While past shutdowns have had limited market impact, the timing and content of the jobs data will be closely watched for clues about the Fed’s next moves. As Brian Jacobsen, chief economist at Annex Wealth Management, put it, "The market and broader macroeconomic effects of a shutdown, even lengthy ones, are often mere blips on the charts."
With inflation tamed for now, stocks rebounding, and tariffs shaking up select sectors, Wall Street’s mood is a complex mix of relief and caution. The next few weeks will test whether the economy’s soft landing can hold—and if the rally can outpace the risks lurking just beneath the surface.
