Stock Market Outlook: CPI, Chip Earnings and $106 Oil Test Rally

A Friday rally that settled little

Wall Street ended last week higher, but the session told you more about which risks investors had chosen to ignore than about any real resolution. On Friday, October 9, the Dow added 423.31 points, or 0.83%, to close at 51,654.95. The S&P 500 rose 0.59% to 7,811.54, and the Nasdaq Composite gained 0.64% to 27,366.17.44 That left the S&P 500 up about 1.2% for the week, the Dow up 0.9% and the Nasdaq up 0.6%, its fourth straight weekly advance.41

The gains came while the pressure underneath kept building. The 10-year Treasury yield rose to 5.244% and the 2-year reached 4.793% on Friday, even as stocks climbed.46 Longer-dated yields hit 24-year highs during the week.44 Kiplinger summed up the session as a market climbing a "wall of worry", with a weak consumer sentiment reading doing nothing to stop the advance.46

The headlines that drove Friday were mostly about single companies. SpaceX said it had agreed to buy a nationwide low-band spectrum portfolio, a step toward making Starlink Mobile a full US carrier.43 Kiplinger reported T-Mobile down 13.3%, AT&T down 9.8% and Verizon down 8.8% that day.46 On Monday, though, all three carriers recovered some ground.48 That pattern of a sharp drop and a partial rebound has been typical of this tape. Big stories move individual stocks hard, but the index-level forces, mainly rates, oil and AI spending, are what decide the direction.

The Fed: a hawkish pause, not a pivot

Monetary policy is the backdrop to everything else. The Federal Reserve raised rates by 25 basis points on September 16 in a 12-0 vote, its first hike since 2023, which took the target range to 3.75%-4.00%.8 Minutes released October 7 showed that most officials expected another increase to be appropriate by year end.1

The question now is when that hike comes, not whether it comes at all. September payrolls rose by only 29,000 against forecasts of 90,000, and that weak report pushed rate-hike bets from the October 28 meeting toward December.1 Prediction-market pricing on Kalshi showed about an 80% chance of a hold this month and an 18% chance of a 25-basis-point hike.6 Estimates for a hike by December ranged from about 75% to 85%.1 Governor Christopher Waller added to the case for a pause by saying hikes "do not need to come at consecutive meetings."1 CoinDesk also reported that New York Fed President John Williams sees no rate hikes in 2027.40

The inflation data look messier. One market note cited median one-year inflation expectations of 3.9% for September, the highest since May 2023.50 A separate preview put one-year expectations at 4.6%.1 The two figures probably come from different surveys, but both show expectations moving the wrong way. That is why the September CPI report on October 14 matters so much. Admiral Markets suggested that a core reading of 0.3% or more could bring October hike bets back, while a reading near 0.2% would support a hold.1 HSBC's Daragh Maher argued that one CPI print may not be enough to overturn the pause story senior officials have been building.29

Our reading is that the market has priced the Fed reasonably well. The real risk is that oil keeps lifting headline inflation, which would make a December hike close to certain and keep long yields near their highs.

Chips: strong numbers, shaky confidence

Semiconductors are where the gap between fundamentals and price action is widest. On Friday, Lumentum's CEO said the company's optical components were "completely sold out" through early 2029 and that it could not meet about 70% of demand for some products through next year.43 By Tuesday, the sector was falling again. Memory and equipment stocks dropped after a weak session in South Korea, with Applied Materials down 6% and Lam Research and Teradyne each off more than 3%.45 South Korea's KOSPI fell as much as 6% as investors worried about chip valuations.24

The commentary agrees that this week's two big reports are a confidence test for the whole AI trade. ASML reports October 14 and TSMC follows on October 15.12 Saxo's analysts said higher bond yields, geopolitical uncertainty and doubts about the scale of AI capital spending have caused a rethink of valuations, and that strong demand alone may no longer be enough to keep the rally going.12 TSMC has already reported third-quarter revenue of NT$1.494 trillion, up about 51% from a year earlier, so the focus is on its 65%-67% gross margin guidance and its outlook for 2027.12 ASML has guided to third-quarter revenue of €11 billion to €12 billion, up from €9.3 billion in the second quarter.17

The bull and bear cases are both easy to make. Investing.com noted that both companies have beaten earnings estimates in each of the last four quarters. TSM's 7.9% drop last week has also lowered the bar.15 On the other hand, ASML is up about 54% this year and analysts expect its earnings to rise sharply again in 2027, so any hesitation in its commentary could hurt.15 One preview made the point that ASML could post a very strong quarter and still fail to impress, because forecasts already sit near the top of its guidance.18 The memory-cost problem is also starting to reach consumers. Nikkei reported that Apple cut October component orders for the iPhone 18 Pro models by at least 15%, citing soaring memory costs and weaker demand.43 In our view, forward guidance will decide how chips trade this week. Beating the quarter will not be enough.

Oil: a war premium that keeps coming back

Crude remains the most volatile input. On October 8, Brent jumped 5% to $105.3 a barrel. The move followed reports that the White House had asked for options for further strikes on Iran, while a hurricane forced Gulf of Mexico production shutdowns.21 Prices eased on Friday after President Trump said the US would not attack Iran before the November midterms, and Brent fell toward $103.43 The relief did not last. By Monday's close, Brent had risen 1.8% to $106.65. Ukraine questioned an "energy ceasefire" Trump had announced, and Saudi Arabia came under new attacks.28 A Houthi strike on Riyadh's airport reportedly killed 13 people.25

Forecasters disagree on how long this lasts. Goldman Sachs raised its December Brent forecast to $90, estimating a risk premium of a little over $20 a barrel.25 Oxford Economics now expects Brent to average above $100 through the second quarter of next year.28 Trump's plan to bring Russian diesel to market met skepticism, with one Energy Aspects analyst saying the volumes would "make no difference."28 We think the Oxford view is closer to what traders are pricing. Markets have repeatedly reversed whenever de-escalation looked fragile.

The effects on companies are already showing. Delta cut its full-year earnings-per-share forecast to $5.10-$5.60 from $6.50-$7.50. Third-quarter fuel expenses rose 62% to $4.1 billion.43 Kiplinger noted that this was Delta's first earnings miss since the third quarter of 2024.46

Bitcoin: following macro, not leading it

Crypto has been reacting to rates and the dollar rather than setting its own course. On October 13, Bitcoin fell as low as $80,951 before recovering to about $83,200 by midday, and it was down 2.8% for the week.34 The sell-off wiped out about $771 million in leveraged bets.35 US spot Bitcoin ETFs recorded about $680 million in weekly outflows.37 Bitcoin was down about 5% for the year as of October 11.36 With nearly every risk asset in the S&P 500 higher this year, that is a notable gap.

The main source of buying still comes from corporate treasury firms. Strive bought 3,311 BTC last week and launched a preferred stock to fund more purchases.33 Analysts quoted around the CPI release warned that a hot reading could push Bitcoin back toward $81,000.33 The links between the markets look clear to us. Higher oil leads to higher yields, which strengthen the dollar and weaken crypto, so Bitcoin is in practice a leveraged bet on how this week's inflation data turn out.

What to watch next

Earnings season is giving mixed signals. JPMorgan missed estimates but raised its net interest income outlook, while Goldman Sachs posted revenue well above forecasts.45 Strategists also disagree on the bigger picture. RBC thinks a 5%-10% pullback in the S&P 500 is overdue, while Goldman Sachs expects household and foreign demand to keep supporting the bull market.49 JPMorgan's view is that earnings will hold the market up, even though investors worry results could fall short.49

Our reading: the coming sessions depend less on any single headline than on whether this week's CPI and producer-price data, along with ASML's and TSMC's guidance, can calm a bond market that is reacting to the Middle East. If inflation comes in soft and the chip outlook is strong, Friday's rally looks justified. If oil keeps rising and core inflation runs hot, the gains made while ignoring those worries could reverse quickly.