Wall Street Rebounds: PCE In‑Line, Tariff Shock, and Fed‑Cut Bets

Key facts (today)

Inflation matched forecasts. August PCE rose 0.3% m/m (headline 2.7% y/y; core 2.9% y/y), easing fears of a hotter print. 10‑yr Treasury ~4.18%, 2‑yr ~3.65% after the release. ^[1]
Stocks bounced. By early afternoon, the S&P 500 and Dow were up ~0.5% and the Nasdaq ~0.4%, clawing back part of a 3‑day slide. ^[2]
Rate‑cut path: Swaps priced ~20 bps of easing in October and ~38 bps by year‑end, a modestly dovish path vs. earlier in the week. ^[3]
Tariffs back in focus. The White House unveiled 100% tariffs on branded/patented drug imports, 25% on heavy trucks, and 30–50% on furniture/cabinets, effective Oct. 1; carve‑outs apply for firms building U.S. plants. ^[4]
Global pushback & workarounds: The EU and Japan said July agreements effectively cap pharma tariffs well below 100% for their exporters; AstraZeneca moved to cut certain U.S. drug prices via direct‑to‑patient sales. ^[5]
Sector movers: Truck maker Paccar rallied on domestic exposure; home furnishing names slipped on tariff risk; Eli Lilly and Viking Therapeutics edged higher; Intel and GlobalFoundries popped on chip headlines. ^[6]
Oil: Crude headed for its biggest weekly gain in ~3 months on Russian fuel export curbs — a tailwind for energy equities and inflation‑sensitive narratives. ^[7]
Valuation check: The S&P 500’s forward P/E is ~22.6–22.8, above 5‑ and 10‑year averages. ^[8]
Earnings setup: FactSet’s latest Q3 2025 S&P 500 EPS growth estimate = 7.7% y/y; revenue growth ~6.3%, with IT leading. ^[9]
Macro backdrop: The BEA’s Q2 GDP was revised up to 3.8% (annualized), driven by consumer spending; next jobs report (which could be delayed by a government‑shutdown risk) is the near‑term catalyst. ^[10]
AI & yields: Analysts warn higher long‑term yields could cool debt‑funded AI capex that’s powered mega‑cap gains. ^[11]

The U.S. stock market today — what moved prices

1) The data that mattered: PCE & spending
Markets exhaled as the Fed’s preferred inflation gauge arrived exactly as expected: headline PCE +0.3% m/m (2.7% y/y), core +0.2% m/m (2.9% y/y). Treasury yields drifted lower, with the 10‑yr near 4.18% and the 2‑yr around 3.65%, signaling relief that there was no upside shock. Futures ticked higher on the print. ^[12]

“This should give some reassurances on the inflation side,” said Doug Beath of Wells Fargo Investment Institute. ^[13]

Consumer spending stayed solid in August, adding to this week’s Q2 GDP revision to 3.8%. The resilience complicates the Fed’s job (growth strong, inflation easing only slowly) but supports corporate revenue trajectories into Q4. ^[14]

“Net‑net, the data show consumers continue to spend and the economy may not be slowing as quickly as anticipated,” noted Gennadiy Goldberg of TD Securities. ^[15]

2) Rates, the Fed and the curve
Pricing in swaps points to ~20 bps of easing in October and ~38 bps by year‑end after today’s numbers. The curve is positively sloped again (10‑yr above 2‑yr), and Fed officials are signaling a balance between jobs and inflation risks. ^[16]

Richmond Fed’s Thomas Barkin said he has “very low confidence in inflation forecasts right now,” underscoring policy uncertainty heading into Q4. ^[17]

“Inflation remains sticky, but it’s not accelerating in a way that would block at least one more cut this year,” said Peter Cardillo of Spartan Capital. ^[18]

3) Tariffs: who wins, who loses
The White House’s 100% tariff on branded/patented drug imports, 25% on heavy trucks, and 30–50% on furniture/cabinets jolted sector sentiment. Paccar outperformed on its U.S. footprint; home‑goods retailers lagged. Pharma’s reaction was mixed as EU and Japan cited July agreements they say limit duties for their exporters, and AstraZeneca rushed out price cuts and a direct‑to‑patient channel for some drugs. ^[19]

4) Micro movers & headlines

Intel rose after reports it approached TSMC for investments/partnerships; GlobalFoundries rallied on talk of a new U.S. chip rule to curb overseas reliance. ^[20]
Boeing gained as reports indicated the FAA will partially return “ticketing” authority on some 737 MAX/787airworthiness certificates beginning next week (production cap remains). ^[21]
Energy sentiment firmed with oil on track for its biggest weekly rise in ~3 months amid Russian fuel export curbs. ^[22]
Costco—a widely watched consumer bellwether—delivered mixed Q4 optics: solid top/bottom‑line, slightly soft same‑store sales, and membership dynamics in flux; AP noted shares dipped earlier. ^[23]

5) Valuations, breadth and AI’s bill
Even after this week’s wobble, U.S. equities trade rich to history: forward P/E ~22.6–22.8 vs. 10‑yr avg ~18.5–18.7. Wall Street’s debate: can EPS catch up (FactSet’s Q3 growth +7.7%) fast enough to justify multiples? Meanwhile, macro strategists warn that higher real long‑term yields could cool debt‑funded AI data‑center capex that has driven mega‑cap leadership. ^[24]

Jay Hatfield: “If you’re first, bubbles don’t matter.”
Jay Goldberg (Seaport): “We are getting into bubble territory.” ^[25]

Expert sound bites you can use

Wells Fargo Investment Institute (Beath): “This should give some reassurances on the inflation side.” ^[26]
TD Securities (Goldberg): “Consumers continue to spend and the economy may not be slowing quite as quickly.” ^[27]
Spartan Capital (Cardillo): “Inflation remains sticky, but not accelerating enough to block another cut.” ^[28]
Bokeh Capital (Forrest): The labor market is likely more important to the Fed’s next move. ^[29]
Citi (Nathan Sheets): “More inflation pass‑through is still to come” as inventories clear and tariffs filter into prices. ^[30]
Richmond Fed (Barkin): “Very low confidence in inflation forecasts right now.” ^[31]
Analysts to Axios: “Don’t miss the rally” vs. “bubble territory” warnings — the split that defines 2025. ^[32]

Forecasts & scenarios (near term)

Earnings & multiples

Base case: Q3 EPS +7–8%, revenue ~6% (FactSet), with IT and Communication Services leading; valuations stay elevated but workable if earnings broaden beyond mega‑cap tech. ^[33]
Bull case: Softer labor data + steady disinflation = 2–3 more cuts by year‑end, multiple expansion resumes; breadth continues to improve (the “un‑Magnificent 493” theme). ^[34]
Bear case: Tariff pass‑through + sticky services inflation → yields stay high, AI capex cools at the margin, leaving stretched P/E vulnerable. ^[35]

Policy path, as priced
Swaps imply ~20 bps of additional easing in October and ~38 bps by year‑end; that’s consistent with a gradual, data‑dependent Fed that wants to support jobs without re‑igniting inflation. ^[36]

Wild cards to watch

Tariffs: scope, exemptions, and corporate workarounds (e.g., direct‑to‑patient pharma) will drive sector dispersion. ^[37]
Bond market: if 10‑yr drifts materially higher, equity duration (growth/AI) could re‑rate; if it eases, the multiple may hold. ^[38]
Macro prints: jobs report next week (timing could slip if shutdown risk materializes). ^[39]
Energy: supply shocks that keep crude firm complicate the disinflation path. ^[40]

Today’s biggest storylines, in one place

PCE in line; yields slip; stocks rebound — intraday gains across the majors after the inflation print. ^[41]
Tariffs ripple across sectors — trucks, furniture, and pharma in focus; carve‑outs and alliances shape market reaction. ^[42]
AI & rates — strategists caution that high long‑term yields could slow capex‑heavy AI build‑outs supporting mega‑caps. ^[43]
Earnings math — Q3 EPS +7.7% expected; breadth improving but valuations elevated vs. history. ^[44]
Boeing watch — FAA poised to partially restore certification authority on some 737 MAX/787 deliveries. ^[45]

Context that shaped today’s tape

Earlier this week the S&P 500 and Nasdaq notched fresh record highs before a mid‑week pullback on valuation and Fed caution headlines. ^[46]
Q2 GDP surprise to 3.8% annualized highlighted steady consumption; today’s PCE keeps “soft‑landing” hopes alive—not a green light for aggressive cuts, but not a red light either. ^[47]

What to watch next week

Nonfarm payrolls / unemployment rate — guidance for the October and December Fed meetings; breadth of hiring vs. wage trends. A shutdown could delay release. ^[48]
ISM data and jobless claims — momentum check on goods/services. (Consensus focus flagged across today’s coverage.) ^[49]
Tariff implementation (Oct. 1) — watch pass‑through to pricing and company guidance in tariff‑exposed industries. ^[50]

Sources & quoted experts (selected)

Inflation & market reaction: Reuters PCE wrap and market color; inline quotes from Wells Fargo II, TD Securities, Spartan Capital, Bokeh Capital, and Richmond Fed’s Barkin. ^[51]
Intraday moves & sectors: AP midday recap. ^[52]
Tariffs: Reuters explainer and update; Politico brief; EU/Japan responses; AstraZeneca pricing action. ^[53]
AI & yields: Reuters (Joachim Klement commentary). ^[54]
Valuation/EPS: FactSet Earnings Insight (Sept. 19), plus Reuters valuation context. ^[55]
Oil: Reuters energy wrap (weekly gain on Russia fuel exports). ^[56]
Fed expectations: Bloomberg swaps/curve pricing. ^[57]
Boeing/FAA: Reuters update on partial return of airworthiness certificate authority. ^[58]
Rally vs. bubble debate: Axios survey of strategists (Jay Hatfield, Jay Goldberg). ^[59]

Note: Index moves cited are intraday snapshots from today’s reporting and can change by the close. This report is informational and not investment advice.

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