How the US stock market shrugged off high inflation — For now

The latest CPI report showed extremely large price gains over the past year.

graph depicting inflation with the word written in the middle

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market initially reacted as one might have expected after the Consumer Price Index rose more than projected in September, with market benchmarks opening sharply lower. However, investors somehow found a silver lining in the numbers, and by the end of the day, the S&P 500 (SNPINDEX: ^GSPC) and Dow Jones Industrial Average (DJINDICES: ^DJI) were up between 2.5% and 3%, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) settled for a slightly smaller rise.

Index Daily Percentage Change Daily Point Change
Dow +2.83% +828
S&P 500 +2.60% +93
Nasdaq +2.23% +232

Data source: Yahoo! Finance.

The turnaround came as a surprise to many investors, who figured that news that inflation was stronger and more persistent than originally believed might lead to further losses. A closer look at the inflation report seems to confirm the potential negative effects on the broader economy, but that still leaves the simple fact that one-day moves in the market are highly unpredictable. Below, you can learn more about the factors affecting the financial markets on Thursday and what they mean going forward.

Inflation stays high

The Consumer Price Index rose 0.4% in September, bringing its year-over-year rise to 8.2%. The monthly number was higher than expected, although the year-over-year figure was down slightly from where it was as of August.

Although the 0.4% rise was less than the CPI has experienced in several months earlier this year, many market participants were surprised because the number included a sizable downward effect from falling energy prices. The CPI's energy subindex fell 2.1%, with even larger drops in gasoline prices getting offset in part by more expensive natural gas and electricity costs.

The main problem came from other key items. The food index, which is also volatile, continued its recent ascent, climbing 0.8% from August to September. That brought year-over-year food price increases to 11.2%, with food for home use seeing an even steeper 13% rise in prices.

Meanwhile, the core CPI, which excludes both food and energy, was up 0.6% for the month and 6.6% from where it was a year ago. Sizable gains in costs of transportation and medical care services were most notable, as was the 0.7% rise in shelter costs. Used car prices declined, but new vehicle prices kept rising to move up 9.4% from where they were 12 months ago.

A counterintuitive rise

Given ongoing inflationary pressures, it'd be natural to expect the stock market to keep dropping. But in evaluating a one-day move, it's important to understand that there are always multiple factors in play that can lead to counterintuitive results.

One thing to remember is that stock markets had already seen huge declines over the past month and a half, which arguably indicates that investors were prepared for inflation not to calm down the way some had hoped. After a beginning-of-month rally that tried to regain some lost ground from a terrible September, the S&P 500 finished Wednesday slightly below where it had started the month. Coming on the heels of a more than 9% drop the previous month, a daily rise of nearly 3% still means that the large-cap index is down more than 7% from where it finished the month of August.

In addition, stocks have tracked bond market movements fairly closely, and bond investors seemed more comfortable with the high inflation report than one would have expected. After spiking above 4%, the 10-year Treasury finished the day yielding less than 3.95%, up just four-hundredths of a percentage point.

Today's big jump doesn't mean that the bear market is guaranteed to be over, and short-term movements could carry stocks lower in the days and weeks to come. Yet it does serve as a key reminder that markets won't behave the way you necessarily expect in the short run, and you can often find yourself drawing the wrong conclusion even when news events work out the way you expect. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
International Stock News

Should investors be concerned about Berkshire Hathaway's record $348 billion cash position and third consecutive quarter of no stock buybacks?

Here's what the treasure trove of cash and lack of buybacks signal, and if Berkshire is still an excellent value…

Read more »

Woman in business suit holds both hands out with a question mark above each hand.
International Stock News

AMD vs. Nvidia: Which artificial intelligence stock should you buy on the dip?

Which of these two chip stocks is the better option right now?

Read more »

Woman and man calculating a dividend yield.
International Stock News

Greg Abel is taking over for Warren Buffett at Berkshire Hathaway. Here's what you need to know.

It's hard to imagine the company without the investing legend at its helm.

Read more »

Happy family watching Netflix together.
International Stock News

Netflix stock gained 21.4% last month. Here's how.

Is Netflix on track for a long blockbuster run? Check out what's fuelling investor excitement about the media-streaming veteran right…

Read more »

An elderly man finds out he's made a mistake.
International Stock News

Warren Buffett's career in review: His worst investment decisions

Despite the wins, Buffett has also made plenty of errors in his long career.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
International Stock News

Warren Buffett's career in review: His best investment decisions

Buffett's best buys are simply astonishing.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Meta Platforms is ramping up data center and AI investments. Is the growth stock a buy now?

Let's take a look.

Read more »

A head shot of legendary investor Warren Buffett speaking into a microphone at an event.
International Stock News

Berkshire Hathaway stock plunges after Warren Buffett steps down. Is this a golden opportunity to buy?

Investors might be wondering whether they should be buying or selling Berkshire Hathaway stock now.

Read more »