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Investing.com -- U.S. stocks climbed on Friday, capping off a week of gains as investors digested the Federal Reserve’s latest rate move.
The Dow Jones Industrial Average rose 172.85 points, or 0.37%, to 46,315.27, marking a new all-time high. The S&P 500 advanced 0.49% to 6,664.36, and the Nasdaq Composite gained 0.72% to close at 22,631.48.
Small caps underperformed, with the Russell 2000 slipping 0.7% after touching a record intraday high earlier in the day.
Apple shares jumped 3.2% as its newest iPhone hit stores worldwide, while Tesla added 2.2%.
All major indexes booked weekly advances, with the S&P 500 up 1.2%, the Dow 1%, and the Nasdaq 2.2%. The Russell 2000 also rose 2.2% for the week, marking a seventh straight weekly win.
Markets were buoyed after the Federal Reserve cut its benchmark lending rate by 25 basis points, the first reduction since December.
The move was largely anticipated, though trading turned choppy when Fed Chair Jerome Powell described the cut as a “risk management cut” during his press conference.
As the Fed resumes lowering interest rates, housing stocks have been among the first areas to show renewed strength, with recent gains reflecting expectations of further policy easing.
Sectors sensitive to borrowing costs, including small caps and consumer discretionary shares, are also seen as potential beneficiaries.
Homebuilders in particular could get a lift if rate cuts translate into cheaper mortgages and improved demand in a housing market that has been under strain.
Investors are hopeful that easier monetary policy will extend support to a broader set of economically sensitive shares, reducing reliance on large-cap technology names that have dominated recent market gains.
The outlook for the pace of easing, however, remains uncertain. Persistent inflation could still keep the Fed from delivering as many cuts as investors expect.
This week brings a series of key economic releases, with fresh data on existing and new home sales expected to shed more light on housing trends.
Updates on second-quarter GDP, manufacturing and services activity, and the Fed’s preferred inflation gauge—the personal consumption expenditures price index—are also due.
"As we get deeper into 4Q, we think the equity market is likely to shift its focus from the tension between the lagging labor data and the Fed’s reaction function to the idea that the 2026 Fed is likely to be more tolerant of sticker inflation," Morgan Stanley chief U.S. equity strategist Michael Wilson said in a note.
In addition, markets will be watching more remarks from Powell on Tuesday.
Q2 earnings wrap: Micron, Costco still to report
The second-quarter reporting season is winding down, with only a few notable companies left on the calendar.
This week, Costco, Micron Technology (NASDAQ:MU), and consulting firm Accenture headline results, with earnings surprises from any of them big enough to sway markets.
Micron and other semiconductor names rallied last week after Nvidia disclosed a $5 billion investment in Intel. The funding is part of a broader agreement to jointly develop data center and PC chips with the struggling chipmaker, which recently secured backing from the U.S. government.
What analysts are saying about U.S. stocks
Morgan Stanley: "Positive operating leverage, falling wage costs, pent up demand and inflecting EPS revisions suggest the recession that some are now fearing is already behind us. The question now is whether the Fed transitions fast enough given what markets expect and/ or need for this new bull market to continue."
Evercore ISI: "A Bubble has a long way to go. With only a 25% adoption rate in corporate America, AI is more analogous to the early Internet in 1996. Sentiment is far from the Bubble extremes – not only would we expect to see a Bullish surge, but the mountain of cash be deployed and margin used extensively. Dotcom era leader gains like CSCO were magnitudes above AI leaders rallies YTD. “Further to run”, though, does not preclude volatility – NDX saw numerous 10%+ pullbacks throughout the Dotcom Bull."
Raymond James: "All indexes are well above 50/200 DMA, at or very near all-time highs, and it’s hard to find bears in an economic environment that remains “Goldilocks”, AI spending continues, monetary stimulus is here, some level of fiscal stimulus is near, and bond yields remain benign (weak labor data is the market’s best friend right now). Valuation rarely causes meaningful pullbacks on its own, likely some combination of higher 10-year Treasury yields, higher yields, or some long tail event that increases risk spreads is required."
"A continued ramp up in yields is likely the biggest risk to this meaningful rally in risk assets since April."
RBC Capital Markets: "Stocks tend to move up in the 12-month period following cuts, unless the cuts occur during or before a recession. Reset cuts (those after a long pause within a cutting cycle) have a median 12-month-forward return of 13%, while non-recession cuts tend to have a median 12-month-forward return of 21%. The analysis highlights upside risk to our 7,100 2H26 S&P 500 price target."
Yardeni Research: "The Roaring 2020s remains our base-case scenario for the remainder of the decade. We are still targeting the S&P 500 to get to 7700 by the end of next year. If the stock market parties like it’s 1999 in response to the Fed’s monetary easing, then we might get there sooner as a result of a meltup that could be followed by a meltdown. If so, the hangover this time isn’t likely to be as severe as the one that followed the Party of 1999, in our opinion."