The three major stock market averages all rose on Friday and finished the week with solid gains. The 30-stock Dow Jones Industrial Average rose 1.4% to 44,176 – the NASDAQ Composite jumped 3.9% to 21,450 (which is a new all-time record high) – the Standard & Poor’s 500 Index added 2.4% to 6,389 ( just shy of a new record high).
Factors behind the technology led rally include a strong earnings season along with the financial markets increasingly expecting the Federal Reserve will cut interest rates at their policy meeting next month.
With 90% of the Standard and Poor’s 500 companies having reported actual results, for the second quarter of 2025, 81% of S&P 500 companies have reported a positive EPS (Earnings Per Share) surprise, which is above the 5-year average of 78% and above the 10-year average of 75%, according to data from FactSet. Remember, earnings are the mother’s milk of stock prices! Along with earnings, the outlook for interest rate cuts is also supporting the stock market.
The current probability is approximately 90% the Federal Reserve will cut interest rates by a ¼ percentage point at its September meeting, up from approximately 80% a week ago, according to CME FedWatch. Further, investors are now generally expecting two interest rate cuts by the end of the year. After recent employment data was revised notably lower, markets are figuring the Fed will begin focusing more on the employment side of their dual mandate, rather than the inflation side (meaning interest rate cuts to spur employment).
Inflation numbers, however, will test the stock market rally this week, as the important Consumer Price Index (CPI) is scheduled to be released tomorrow morning. Expectations are the Bureau of Labor Statistics will report prices rose 2.8% last month on a year-over-year basis. If this number comes in too hot it will be a source of pushback on the belief that a couple of interest rate cuts will be coming this year. The market will also be looking for any signs of tariff related inflation. While worries of tariffs have been an overhang and often cited as a concern for the stock market, stock prices have nevertheless rallied back to record territory.
As always, please don’t hesitate to reach out if you have any questions or would like to schedule a meeting.
All the best – Southport Station Financial Management, LLC