The stock market ended the week on a high note as the Dow Jones Industrial Average closed above 40,000 points for the first time since May. Investors were pleased with the rally, which extended beyond the mega-cap tech companies typically associated with the AI sector.
All sectors of the S&P 500 saw gains on Friday, with 90% of the index’s components ending the day in positive territory. Small-cap stocks also experienced a boost, with the Russell 2000 index rising over 1% after a 4% surge on Thursday.
The upward momentum was driven by positive economic data that is signaling a potential rate cut in September. Consumer prices increased less than expected last month, while wholesale inflation saw a slight uptick. Market analysts believe that these figures are not significant enough to deter the Federal Reserve from cutting interest rates next month.
Traders are now pricing in an almost 90% probability of a rate cut at the Federal Open Market Committee meeting in September. Additionally, the chances of a 50-basis point rate cut in December have increased, with expectations that the fed funds rate could drop to 4.50%-4.75% by the end of the year.
Bond yields have decreased as the market adjusts to the new rate outlook. The two-year Treasury note has fallen by around 14 basis points in a week, while the 10-year bond is down over eight basis points in the same period, settling at 4.182% on Friday.
Investors are now optimistic about the potential for stocks that were previously impacted by tighter Fed policies to perform well. This development is easing concerns about market concentration, particularly among technology giants like Nvidia.
