Week in review: Stocks hit records on inflation data, earnings — plus, we started a new name

U.S. equities, with the S&P 500 and Nasdaq reaching record highs and gaining 2% and 2.3% respectively, were primarily propelled last week by cooler-than-expected September CPI data, which left the door open for potential Federal Reserve rate cuts. This positive momentum was significantly reinforced by a robust Q3 earnings season, as 87% of reporting S&P 500 companies exceeded expectations, exemplified by strong results from Danaher, Capital One, GE Vernova, Honeywell, and Dover. Market participants largely overlooked ongoing Washington trade and government shutdown concerns, prioritizing favorable economic indicators and corporate performance.

Analysis

The S&P 500 and Nasdaq achieved record highs last week, rising 2% and 2.3% respectively, primarily driven by cooler-than-expected September CPI data. Headline CPI increased 0.3% month-over-month and 3% year-over-year, with the core rate up 0.2% and 3% respectively, both below forecasts. This inflation data has significantly increased expectations for a Federal Reserve interest rate cut next week, overshadowing political concerns like the government shutdown and trade talks.

Robust Q3 earnings season performance further propelled market gains, with 87% of reporting S&P 500 companies beating earnings expectations, well above the typical 67% rate. Danaher, Capital One, Honeywell, and Dover all delivered strong results, with Danaher's shares surging on an upbeat forecast and Capital One showing better-than-expected credit performance. Honeywell also hiked full-year guidance, and Dover highlighted AI-driven benefits.

Strategic moves and thematic plays are also noteworthy; GE Vernova's strong backlog growth is linked to AI data center demand, while Honeywell's planned spinoffs aim for focused growth. The Club initiated a position in Corning, citing its role in AI infrastructure and its Apple partnership. Conversely, Texas Roadhouse was downgraded due to ongoing margin pressure from rising beef prices, expected to persist through 2026.

Key Decisions for Investors

• Investors should prioritize companies demonstrating strong earnings beats and positive forward guidance, particularly those positioned to benefit from secular growth trends like AI infrastructure development
• Maintain exposure to quality names given the favorable macro backdrop of cooling inflation and potential Fed rate cuts
• Monitor upcoming earnings reports and Federal Reserve communications for any shifts in market dynamics
• Re-evaluate positions in companies facing persistent margin pressures or other fundamental headwinds.