Stocks Rebound on Slight Move Up in Inflation

Published as of: September 26, 2025, 9:18 a.m. ET

(Friday market open) U.S. inflation edged up slightly in August, but not to shocking levels, and consumer spending stayed resilient despite job market hiccups. Major indexes rebounded early Friday as Personal Consumption Expenditures (PCE) price data basically met expectations and didn't appear likely to cause more anxiety at the Federal Reserve.

PCE rose 0.3% and core PCE—which excludes food and energy—climbed 0.2% last month while year-over-year core PCE was steady at 2.9%. Personal spending topped analysts' forecasts at 0.6%. "PCE was in line with expectations," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research. "Personal income, wages, and salaries were up but not as much as the prior reading, so it suggests some slowing but not a significant drop off. PCE was also revised downward for the prior month, so it gives the green light for the Fed to continue with the bias to cut rates this year."

Positive news became negative for stocks Thursday after economic data came in better than expected. These announcements are "pushing out" rate cut expectations and lowering the probability of two more cuts in 2025. The December rate cut expectation moved from 83% to 61% in just one week, according to the CME FedWatch Tool. Profit taking after a strong quarter could also explain the selling. Today brings updated third quarter earnings expectations from FactSet after second quarter results topped estimates. Earnings might provide a fresh catalyst next month, but for now investors might focus on new tariffs, a a possible government shutdown, and associated layoffs, which could put new pressure on employment and consumer spending.

1. Sentiment check next: University of Michigan final September consumer sentiment looms at 10 a.m. E.T., and consensus is for another gloomy reading of 55.4, according to Briefing.com. That's the same as the preliminary estimate and down from 58.2 in August. A year ago, sentiment was 70.1. Watch the report's current economic conditions and inflation expectations for better insight into consumer thinking. Tariffs have weighed on consumer sentiment, and the Trump administration announced more this week, including a 100% levy on pharmaceutical imports unless a company is building plants in the U.S. "So far, the gist is that the consumer keeps spending, the labor market is caught in a 'low hire, low fire' scenario, and inflation isn't reaccelerating but remains above the Fed's 2% target," my colleague Howard said.
    
2. Valuation release valve: One factor in determining the value of a stock is by comparing it to other investments like U.S. Treasuries. If the yield on a perceived safer investment like U.S. Treasuries is higher, then stock valuations must be lowered to justify the risk of owning them. The 10-year Treasury yield rose three basis points on Thursday and has risen in six of the last seven trading sessions. Many stocks benefited from expectation of lower rates, but now investors are rethinking stock valuations because the interest rate picture is less clear, which could lead to more selling.
    
3. AI's breadth line: AI-adjacent companies that power AI energy needs include boring old stocks like utility companies. Nuclear energy providers like Constellation Energy (CEG), BWX Technologies (BWXT), and NuScale Power (SMR) have fiercely moved higher. The utility and energy sectors have seen investors move in with major breadth expansion. In fact, both sectors now have more than 85% of their respective stocks trading above 10-day moving averages (indicating near-term strength) more than 75% of their stocks trading above their 50-day moving averages (intermediate strength). Weekly advancers and decliners for these sectors are 22:0 for energy and 28:3 for utilities.

• Oracle (ORCL) is down slightly early Friday and declined for a third straight day Thursday, losing 5.55% in regular-session trading to move off 16% from its recent peak. Analysts attributed much of this pullback to profit taking and skepticism around the firm's AI investments and potential stake in TikTok.
   
• Intel (INTC) added another 4.7% early today after its 8.9% rise yesterday. Gains came after Bloomberg reported that Apple (AAPL) has approached the chipmaker about an investment in the company.
   
• After a significant top- and bottom-line earnings miss, CarMax (KMX) lost 20.1% on Thursday to become the day's worst-performing stock in the S&P 500.
   
• Shares of large U.S. pharmaceutical makers including Eli Lilly (LLY), Merck (MRK), and Pfizer (PFE) all climbed more than 1% in early trading Friday after Trump's announcement of 100% tariffs on pharmaceutical imports, with exceptions for firms building plants in the U.S. Several large-cap companies in the space have already announced they're building U.S. manufacturing facilities, so the move upward today could reflect ideas that their products won't be affected.
   
• Paccar (PCAR) shares accelerated 6.3% early Friday after the Trump administration announced 25% tariffs on heavy trucks manufactured outside of the U.S. Paccar owns Peterbilt and Kenworth and manufactured 90% of its U.S. trucks domestically, CNBC reported.
   
• Costco (COST) fell more than 1% despite beating analysts' earnings expectations. Sales at stores open a year or more grew 6%, which was slightly lower than expected and may be one reason the stock is down, and the company said consumers remain "very choiceful" in spending on discretionary items, Yahoo Finance reported.
   
• Wayfair (W) fell 2.6% ahead of the open while RH (RH) and Williams-Sonoma (WSM) also came under pressure after Trump said new tariffs could come on kitchen cabinets, bathroom vanities, and furniture, Barron's reported.
   
• Bitcoin (/BTC) traded at a three-week low below $109,000 intraday yesterday and continued to slide this morning. The weakness brought down shares of crypto-related firm Strategy (MSTR) nearly 7% Thursday, and Coinbase (COIN) fell 4.7%. Both were down again early Friday. The crypto struggles reflected yesterday's surprisingly solid U.S. GDP reading, which sent Treasury yields higher.
   
• Odds of a rate cut next month inched up to just below 88% this morning after the PCE data, from 85.5% yesterday, according to the CME FedWatch Tool. Odds of two cuts by the end of the year stayed near 61%.
   
• FactSet's earnings expectations are due later today. Last time out, analysts expected third quarter S&P 500 EPS growth of 7.7%.

Fed fracas: As the central bank struggles to balance continued inflation concerns with slowing job growth, observers are keeping a close eye on the nonpartisan institution's independence. Listen to the latest edition of Washington Wise.

All jobs numbers are not created equal: BLS and ADP are the two main jobs reports on the Street, but they often diverge. Our latest analysis investigates why this happens, what each report covers, and what traders can learn from them.  

The Russell 2000^® (RUT) small-cap stock index set a new all-time high Tuesday due to favorable short-term rates that help small but growing businesses that aren’t profitable stay liquid. The move caused the RUT to break a resistance level that is nearly five years old. Unfortunately, the RUT gave a "head fake" because the price has fallen back below support. The change in economic news has the market thinking the Fed is much less likely to keep cutting rates, which is bearish for small-cap stocks.

Check out the investors' calendar for a summary of the top economic events and earnings reports on tap this week.

September 29: Expected earnings from Carnival (CCL).
September 30: September consumer confidence, August JOLTS job openings, and expected earnings from Lamb Weston Holdings (LW) and Nike (NKE).
October 1: ADP employment change, ISM Manufacturing PMI^®, and expected earnings from Conagra (CAG).
October 2: August factory orders. 
October 3: September nonfarm payrolls and unemployment rate and ISM Services PMI^®.