CPI came in. Core was a tenth hotter than expected. Oil pulled back for the first time all week. The S&P snapped a four-day losing streak. Rate hike odds hit 90%. The Fed meets Tuesday. The hike is priced in. What Powell says after it is not.
The Close
First green day in five. The Dow gained 509 points — up 1% to 52,573. The S&P 500 rose 0.86% to 7,657. The Nasdaq climbed 0.96% to 26,333. The Russell 2000 added 1%.
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| S&P 500 | 7,657 | +0.86% | ||
| WTI Crude | $100.05 | −2.4% | ||
| Rate Hike Odds | 90% | +20 pts | ||
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| Info. Technology |
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+1.6% | ||
| Industrials |
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+1.3% | ||
| Consumer Disc. |
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+1.2% | ||
| Financials |
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+1.0% | ||
| Comm. Services |
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+0.9% | ||
| Materials |
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+0.8% | ||
| Real Estate |
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+0.5% | ||
| Health Care |
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+0.4% | ||
| Utilities |
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+0.3% | ||
| Consumer Staples |
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+0.1% | ||
| Energy |
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−1.8% | ||
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CPI arrived at 8:30 a.m. Headline consumer prices rose 0.4% in August, putting the annual rate at 3.4%. Both matched the Dow Jones consensus. Core CPI — which strips out food and energy — rose 0.3% on the month, one-tenth of a point above forecast. The annual core rate came in at 2.4%, in line.
The slightly hot core number sealed something the market had been bracing for all week: a rate hike on September 16 is now a near-certainty. Rate hike odds jumped to 90%.
But the market rallied anyway. Why? Oil gave back some of its week-long surge. WTI dropped 2.4% to $100.05. Brent fell 2.8% to $104.61. After four days of relentless selling driven by crude, the pullback was enough to let buyers back in. Oil is still above $100 — but the direction changed, and direction is what traders trade.
The tech trade roared back. Dell surged 11.3% after RBC initiated coverage with an outperform rating. Hewlett Packard Enterprise jumped 9.1% on record quarterly revenue — $12.2 billion, with $9 billion from cloud and AI. Super Micro gained 6.1%. Cisco added 4.1%, the biggest percentage gainer in the Dow.
Oracle opened sharply higher after reporting strong AI-driven cloud revenue and raising profit guidance. It jumped 7% in premarket but pared gains through the session as the broader tape faded from its morning highs. Still, the Oracle result mattered. After a week where Alphabet got punished for spending $15 billion and Amazon got sold for raising debt, Oracle showed that the AI buildout is producing real revenue, not just real bills.
Adobe reported a solid beat but the stock barely moved. The numbers were about 1% above consensus — good enough to hold, not good enough to excite.
For the week, WTI is up nearly 10%. Brent is up 8.6%. The S&P is still down for the week despite today's bounce. This was a relief rally, not a reset.
What The Market Is Pricing In
The S&P gained nearly 1% on a day when core inflation came in hotter than expected and rate hike odds hit 90%. That sounds like a contradiction. It's not.
The market spent four days pricing in the worst-case version of today's number. When it arrived and wasn't worse, the pressure released. Think of it this way: if you brace for a punch and it lands at the force you expected, you don't flinch. You exhale.
That's what happened today. CPI didn't surprise. Oil stopped climbing. The bond market gave back a few basis points. And the S&P exhaled.
But the exhale doesn't change the diagnosis. A rate hike next Wednesday is locked in at 90%. A week ago that number was 58%. Two weeks ago it was a coin flip. The market has gone from "maybe" to "almost certainly" in ten trading sessions.
The hike itself isn't the risk. The risk is what Powell says at 2:30 p.m. on Wednesday after the decision comes out at 2:00. If he signals one-and-done — raise rates 25 basis points and pause — the market can live with that. If he says the door is open for another hike in November or December, the math changes for every stock that depends on cheap money. Forward guidance will move the market more than the rate decision.
LPL Financial's chief economist put it well: a growing share of the economy doesn't respond to interest rates the way it used to. That was true in 2022–23, and it's true now. Not every sector breaks when the Fed tightens. But the ones that do — housing, small caps, companies carrying heavy debt — are already feeling it. Existing home sales fell 2% yesterday to their lowest rate in months.
I saw this setup in September 2018. The Fed hiked for what turned out to be the last time that cycle. The market didn't crash on the hike. It ground higher for two more months. Then came Q4 2018 — a 20% drawdown in the S&P. The hike didn't cause the pain. The fear that more were coming did. Powell's tone next Wednesday will tell you which version of 2018 we're in — the calm before, or the peak of the cycle.
What's Next
Three things I'm watching next week:
01 — Fed rate decision, Wednesday at 2:00 p.m.
The Federal Open Market Committee wraps its two-day meeting and announces at 2:00 p.m. Eastern on Wednesday. A 25-basis-point hike to 3.75%–4.00% is priced at 90% probability. The market has had two weeks to absorb this. The hike itself should not be a surprise. Watch for a dissent count — if more than two members vote against the hike, that signals internal doubt about tightening into an oil shock. A unanimous vote means the committee is confident the economy can handle it.
02 — Powell press conference and dot plot, Wednesday at 2:30 p.m.
This is the real event. The dot plot will show you how many more hikes the committee sees through 2027. If the median dot points to one more hike after this one, stocks hold. If it points to two or three, the selloff resumes. Powell's language matters as much as the dots. "Data dependent" is dovish. "Prepared to do more" is hawkish. The exact phrase he uses to describe the path forward will set the tone for October.
03 — Oil over the weekend
WTI pulled back to $100.05 today, but it's still up 10% for the week. The Strait of Hormuz is still effectively closed. If the weekend brings another escalation — more tanker strikes, more retaliatory fire — oil reopens Monday above $103 and the relief rally evaporates. If diplomacy makes progress and shipping lanes loosen, oil drops below $100 and the S&P has room to run. The geopolitical tape over the next 48 hours matters as much as any economic data.
The hike is coming. The market has told you that. What it hasn't told you is whether this is the last one. Wednesday afternoon will answer that question. Everything else is positioning.
That's it for today. Have a good weekend. I'll be back on Monday after the close.
