S&P 500 reaches record high, Fed rate cuts anticipated

The S&P 500 reached a record high last week, buoyed by new inflation data that suggests favorable conditions for the Federal Reserve’s potential rate cuts. For the week, the Nasdaq Composite increased over 2.5%, while the S&P 500 rose just under 1.5%, and the Dow Jones Industrial Average added about 0.5%.

This week, corporate earnings season continues, featuring quarterly reports from Alibaba and Walmart, among others. A total of 46 S&P 500 companies are expected to report results during the holiday-shortened trading week. Investors will also focus on minutes from the Federal Reserve’s January meeting, along with updates on manufacturing and services sector activity and consumer sentiment.

Markets are closed today to observe Presidents’ Day. Last week, new inflation readings revealed that prices for January increased more than analysts had anticipated. However, the underlying details provided a positive outlook for the Federal Reserve, indicating that price increases may have slowed during the month. Economists estimate that the “core” Personal Consumption Expenditures (PCE) index, which excludes food and energy costs, will register at 2.6% for January, a decrease from December’s 2.8%. This supports market sentiments of one or two interest rate cuts from the Fed in 2025.

Economist Michael Gapen from Morgan Stanley noted, “We think the bar for Fed hikes remains high… for now, we still think the distribution of Fed policy outcomes skews in the direction of rate cuts as opposed to hikes.” Investors are particularly interested in the Fed meeting minutes scheduled for release on Wednesday at 2 p.m. ET, as they may offer insights on future interest rate decisions.

While the S&P 500 stands near a record high, its performance is not solely reliant on major tech stocks. Meta has seen a 25% increase this year and has risen consecutively for 20 days, contributing to the S&P 500’s growth. However, only Meta and Amazon from the so-called Magnificent Seven tech stocks have outperformed the S&P 500 to date in 2025. As of Wednesday’s close, nearly 48% of the S&P 500 companies have exceeded the index’s 4% gain this year, aligning with the 25-year median and surpassing 2024’s 29% figure.

According to Yahoo Finance, Jay Woods, chief global strategist at Freedom Capital Markets, stated that the number of stocks participating in the rally indicates strength within the bull market. However, he warned, “If we get a bad report out of Nvidia in a few weeks [on Feb. 26], then we could see the market turn lower.”

In the realm of artificial intelligence, companies like Palantir and Super Micro Computer have emerged as front-runners this year, with Palantir’s stock rising over 55% and Super Micro’s up over 50%. These gains highlight a continued enthusiasm for AI-focused investments, despite some major tech companies not leading the market rally.

This week’s corporate calendar is particularly focused on earnings from Walmart, expected on Thursday, as the retail giant aims to maintain its momentum following an impressive prior quarterly report that exceeded analysts’ expectations. Alibaba is also set to report its quarterly results, amid collaboration with Apple to develop features for iPhones in China. Other noteworthy reports include Baidu (scheduled for Tuesday) and Carvana, which has faced scrutiny from short-sellers over its future stability.

Upcoming economic data releases include housing starts and building permits for January, set to be published on Wednesday, and the final February consumer sentiment survey, which follows earlier concerns related to inflation. Additionally, regional manufacturing surveys and jobless claims data will be monitored by investors throughout the week.

Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.

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