Weekly Newletter #48

Better Than Expected CPI Drives Stocks Higher

On Friday, October 24, 2025, the S&P 500 Index surged to a new all-time closing high, underscoring the resilience of risk appetite as investors digested encouraging inflation data and positioned ahead of next week’s Federal Reserve meeting.

chart courtesy of stockcharts.com

Friday’s session opened with a decisive gap higher, following a Consumer Price Index (CPI) report that came in slightly better than expected. The softer inflation reading triggered renewed optimism that the Fed will follow through with a rate cut at its upcoming policy meeting. The tone was positive throughout the day - the market never filled the morning gap. This could be what technicians would classify as a “breakaway gap” , however the coming trading days will need to confirm this.

A Strong Week for Equities

For the week ending October 24, 2025, the S&P 500 gained +1.91%, extending its year-to- date advance to an impressive +15.47%, or +910 points from the 2024 closing level of 5,881.63. The index ended the week above 6,790, breaking decisively through the prior highs set earlier in the month.

This latest rally reflects growing conviction that the monetary easing cycle underway will continue to support both valuation multiples and liquidity conditions. Historically, rate-cutting cycles have tended to bolster equity markets, particularly when inflation is trending lower and earnings growth remains stable. In this instance, the Fed’s pivot toward accommodation comes amid an economy that is cooling but still expanding - an environment often described as “Goldilocks-light”: not too hot to reignite inflation fears, but not too cold to threaten corporate profits.

Market sentiment has also been buoyed by the perception that the Fed can possibly navigate a “soft landing.” The improvement in inflation metrics without a collapse in labor demand has given investors confidence that this easing cycle could extend the current expansion rather than end it. As a result, institutional positioning has turned increasingly “risk-on” , with steady inflows into large-cap equity ETFs and a renewed pickup in call option volume across the index complex.

Sector Performance and Market Breadth

Sector leadership during the week was broad, though familiar themes persisted.
Technology and Communication Services continued to anchor the advance, powered by strength in Mega cap platforms and AI-related names. However, Financials and Industrials showed notable relative performance improvement - an encouraging sign that the rally may be broadening beyond the market’s most crowded trades.

Energy stocks were mixed, consolidating after recent gains linked to geopolitical risk premiums in crude oil. Gold miners and metals shares pulled back in tandem with the decline in bullion prices, but remain well above their summer lows, reflecting confidence that the longer-term commodity cycle is intact.

Technical Picture: Momentum Intact

From a technical standpoint, the S&P 500’s breakout confirms the continuation of the uptrend that began after the April “Liberation Day” tariff-related volatility. The index remains comfortably above both its 50-day and 200-day moving averages, and short-term momentum oscillators have turned upward again after consolidating in early October.

Traders are noting that market internals - advance-decline lines, new highs versus new lows, and sector participation - have improved in tandem with the breakout. That’s a constructive sign suggesting the rally is not being driven solely by a handful of large-cap names. Should the index hold above the 6,700 level next week, the technical bias remains bullish into November, a month that historically carries strong seasonal tailwinds for equities.

Economic Backdrop

Friday’s CPI release was important. Core inflation showed a modest cooling on a month- over-month basis, reinforcing the view that investors have re-anchored inflation expectations. With unemployment stable and growth moderating, policymakers are widely expected to cut rates at the upcoming FOMC meeting, and possibly again in December.

Markets have largely priced in a “measured easing” path rather than an aggressive cutting. The difference matters: gradual cuts tend to support valuations without igniting speculative excess. Treasury yields eased slightly over the week, while the dollar weakened modestly - both consistent with a shift toward easier financial conditions.

Real rates also edged lower, reflecting increased confidence that inflation pressures are subsiding without undermining growth. The combination of softer price data and declining real yields has improved investor sentiment, suggesting that policy normalization could extend the economic cycle rather than end it abruptly. Overall, the macro tone has shifted from restraint to cautious optimism, with markets interpreting the data as validation of a soft-landing narrative.

Commodities

Gold, after hitting an all-time high of $4,381 per ounce, fell to $4,005, but then recovered to $4,110 by Friday’s close. The long-term uptrend remains intact, but gold will need to stage a strong comeback to confirm that the recent selloff was merely a pullback in an ongoing bull phase.

Gold is a crowded trade, with speculative positioning near record highs following a two- year surge driven by central bank demand, currency diversification, and persistent geopolitical risks. Profit-taking is a natural part of a move this big, especially after such a steep multi-month advance. While short-term momentum has cooled, structural demand factors - particularly from emerging-market reserves and institutional hedgers - continue to support the longer-term bullish case.

chart courtesy of stockcharts.com

Meanwhile, crude oil prices have oscillated but remain range-bound as traders balance geopolitical risks against moderating global demand. The relative calm in energy markets has contributed to the benign inflation outlook that underpins the Fed’s flexibility and helps maintain a supportive macro backdrop for equities.

Looking Ahead: Fed, Earnings, and Seasonality

Next week’s Federal Reserve decision will dominate headlines. A 25-basis-point rate cut is widely anticipated (CME FedWatch shows 96.7% chance), and the tone of the accompanying statement will be critical. Investors will look for language confirming that the Fed stands ready to ease further if disinflation continues and growth softens.

Beyond monetary policy, attention will shift to corporate earnings from several large-cap technology and financial firms. Consensus expectations point to mid-single-digit year- over-year earnings growth for the S&P 500 in Q4, suggesting that fundamentals still justify current valuations.

Seasonally, the November-December period has historically been one of the strongest stretches for U.S. equities. With sentiment improving, liquidity conditions easing, and major indexes breaking to new highs, the setup into year-end appears constructive - provided inflation stays contained and the Fed’s message aligns with market expectations.

For Now, Momentum Favors the Bulls

The S&P 500’s breakout to a new all-time high caps an encouraging week for investors. The combination of easing inflation, pending rate cuts, and broadening participation across sectors paints a picture of a market still in an expansionary phase. While short-term overbought conditions may invite pauses, the medium-term trend remains positive. For now, momentum favors the bulls.

Trading Perspective

The S&P 500 capped off a week dominated by the market’s reaction to the softer-than- expected CPI report. The sharp rise in futures (in the pre-market) following the data release carried into the day session, producing a sizable gap-up at the open. Prices held firm throughout the session, trading sideways within a 25-point range as buyers absorbed minor pullbacks and maintained control.

The strong tone suggested that institutions were adding exposure rather than fading the rally. When an index reaches uncharted territory, there are no established resistance levels - only the natural risk of profit-taking after such a strong advance. Short-sellers are likely watching closely but have yet to commit in size. My strategy remains to buy dips selectively and focus on price-gap-specific setups, while managing open positions (carefully) ahead of next week’s closely watched Fed interest-rate decision and the potential for new forward-guidance signals.

My High-Time-Frame (HTF) model, which analyzes daily data, is currently in BUY mode. The uptrend is five days old and strong - exactly what you would expect at a new all-time high.

On the Low-Time-Frame (LTF):

• BUY: 2- , 5-, or 15-minute bars triggered by upward 5/20 SMA crossovers, followed by an SMA bounce. Bar size will be determined by volatility and the prevailing trading range.