U.S. Stocks Rise as Spending Strengthens, Inflation Matches Forecasts; Rate Cut Bets Hold at 88%

U.S. stock indexes closed higher on Friday, supported by upbeat consumer spending data and steady inflation readings. The S&P 500 gained +0.59%, the Dow Jones Industrial Average rose +0.65%, and the Nasdaq 100 added +0.44%. Futures also moved higher, with December E-mini S&P up +0.60% and E-mini Nasdaq up +0.44%.

Economic reports provided a mixed picture. August personal spending increased +0.6% m/m, the strongest pace in five months, while personal income rose +0.4% m/m, both beating forecasts. The Fed’s preferred inflation gauge, the core PCE index, rose +0.2% m/m and +2.9% y/y, exactly in line with expectations, leaving room for further Fed rate cuts. However, optimism was tempered by consumer sentiment, which fell to a four-month low of 55.1 in September.

Sector performance was strong in semiconductors and pharmaceuticals. Chipmakers advanced after reports that the Trump administration is considering measures to boost domestic production and reduce reliance on foreign supply chains. Pharma stocks rose despite Trump’s plan for 100% tariffs on imported drugs, with analysts noting the industry’s significant U.S. manufacturing footprint.

Comments from Richmond Fed President Tom Barkin leaned slightly hawkish, highlighting reduced uncertainty for U.S. businesses and limited risks to jobs and inflation. Meanwhile, looming risks include a potential government shutdown if lawmakers fail to approve a spending bill by October 1.

On the earnings front, expectations remain a tailwind: over 22% of S&P 500 firms have issued upbeat Q3 guidance, the highest in a year, with overall earnings growth projected at +6.9%. Markets currently assign an 88% probability to a -25 bp Fed rate cut at the October 28–29 meeting.

Globally, European markets fared better than Asia, with the Euro Stoxx 50 up +1.01% at a five-week high, while China’s Shanghai Composite fell -0.65% and Japan’s Nikkei 225 dropped -0.87%