Stocks Rise as Investors Look Past Inflation and Tariffs

U.S. stocks gained ground on Friday, breaking a three-day losing streak, as investors shrugged off persistent inflation pressures and a fresh round of tariffs announced by President Trump.

The S&P 500 rose 0.6%, the Dow Jones Industrial Average advanced 0.7% (about 300 points), and the Nasdaq Composite added 0.4%.

The personal-consumption expenditures (PCE) price index—the Federal Reserve’s preferred inflation gauge—showed inflation holding above the central bank’s 2% target last month. Still, the results matched expectations, easing fears of accelerating price pressures.

Markets continue to price in two more Fed rate cuts, expected in October and December, following last week’s 0.25-point reduction in the benchmark borrowing rate.

Despite Friday’s gains, all three indexes posted weekly declines: the Dow slipped 0.1%, the S&P 500 lost 0.3%, and the Nasdaq fell 0.7%. Meanwhile, the yield on the 10-year Treasury note edged higher to 4.185%, up from 4.138% a week earlier.

“The market is treading water at this stage. It’s looking for a reason to move higher or lower,” said Stephen Kylander, senior portfolio manager at Pallas Capital Advisors. “The data suggests we’re not going to get rate cuts beyond current expectations.”

 

Tariffs Spark Limited Reaction

Late Thursday, President Trump unveiled new tariffs on drugs, trucks, and furniture, set to take effect on October 1. The measures include 50% duties on kitchen cabinets, 30% on upholstered furniture, and 25% on heavy trucks.

Drugmakers, however, largely brushed off the news. Shares of Eli Lilly, Merck, and Pfizer gained after the administration clarified that the 100% tariff would apply only to patented or branded drugs sold by companies not investing in U.S. production.

By contrast, Daimler Truck shares dropped 1.8% in Frankfurt, while U.S. rival Paccar jumped 5.2%, seen as a likely beneficiary. In the furniture sector, Wayfair climbed 2.2% while RH fell 4.2%.

“Investors have become desensitized to tariff headlines this year,” said Dylan Bell, chief investment officer at CalBay Investments. “We’ve seen these measures used as negotiating tactics, often followed by compromises.”

 

Market Sentiment: Optimism Meets Complacency

Fueled by expectations of further rate cuts and solid corporate earnings, U.S. equities have continued to push higher in September—historically the weakest month for stocks. But some analysts caution that the rally appears out of step with lingering economic concerns.

Consumer sentiment declined in September, according to the University of Michigan survey released Friday, signaling that households remain cautious.

“With spreads tight and valuations stretched, the market feels complacent,” said Stephen Searl, co-head of corporate and municipal teams at Conning. “It’s hard to predict what could trigger a downturn, but that’s one of our main worries.”

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