US Stocks Rally Hard, Nearing Record Territory
US stock benchmarks surged on Thursday, pushing the S&P 500 index to the brink of its all-time closing high and marking a dramatic recovery from a steep decline earlier in the spring. The broad market index has now regained nearly the entirety of its roughly 20% slump experienced amidst rising concerns over President Donald Trump’s proposed tariffs.
On Thursday, the S&P 500 climbed 0.8%, closing just 0.05% below its record high set back in February. The index even briefly surpassed that mark during the trading day. This rally is a significant milestone for the S&P 500, which forms the core of many retirement portfolios, demonstrating the market’s resilience.
The Dow Jones Industrial Average also posted strong gains, rising 404 points (0.9%), while the Nasdaq composite advanced 1%.
Key Drivers Behind the Market’s Ascent
Several factors contributed to Thursday’s market strength and the broader recovery since the April lows:
Strong Corporate Earnings: Companies like McCormick, the spice maker, provided a boost, jumping 5.3% after reporting better-than-expected profits and forecasting future earnings that topped analyst estimates. McCormick also detailed plans to mitigate the financial impact of increased tariff costs.
Tech Sector Leadership: Over the longer term, large technology companies have been instrumental in leading the market higher. Since the S&P 500 found a bottom in April, the tech sector has continued its dominant performance.
AI Enthusiasm: Chip giant Nvidia, often cited as a bellwether for the artificial intelligence (AI) boom, added 0.5% on Thursday. Its stock has skyrocketed an astonishing 61% since April 8, making it the most valuable company in the U.S. market and dwarfing the S&P 500’s 23% gain over the same period. Another AI beneficiary, Super Micro Computer, saw its shares rise 5.7%, contributing to a 55% gain since April 8.
Memory Demand: Micron Technology, a key player in computer memory and storage, saw its stock fluctuate before closing down 1%. This occurred despite reporting stronger quarterly profit and revenue than anticipated, with the CEO highlighting growing AI-driven memory demand and providing an optimistic forecast for the current quarter.
Improving Economic Signals: Recent economic data releases have painted a cautiously optimistic picture, suggesting the economy is holding up, albeit showing signs of slowing from previous growth levels.
Thursday’s reports included stronger-than-expected growth in orders for durable manufactured goods last month.
A separate report showed fewer U.S. workers filing for unemployment benefits last week, potentially signaling a stable labor market with fewer layoffs.
While a third report revised the first-quarter 2025 economic contraction downwards, many economists view those figures as distorted by businesses accelerating purchases of foreign goods ahead of anticipated tariffs, expecting a stronger performance in subsequent quarters.
Lingering Tariff Concerns and Fed Policy Outlook
Despite the market rally, concerns about President Trump’s tariffs have not entirely dissipated. Wall Street continues to await clarity on the final size of the proposed levies and their potential impact on economic growth and inflation.
In the bond market, Treasury yields saw fluctuations following the economic data and other market news. The yield on the benchmark 10-year Treasury note eased to 4.24%, down from 4.29% the previous day. The two-year Treasury yield, more sensitive to Federal Reserve interest rate expectations, also declined slightly to 3.71% from 3.74%.
Analysts suggested that bond yields may have been influenced by a Wall Street Journal report indicating President Trump might name his nominee to replace Fed Chair Jerome Powell unusually early. Such a move could be interpreted as an attempt to undermine the current chair and could erode investor confidence in the Fed’s independence and ability to make unpopular decisions necessary to combat inflation.
Fed Chair Jerome Powell has repeatedly stated the central bank is waiting to assess the impact of Trump’s tariffs on the economy before deciding when to resume cutting interest rates. The Fed has paused rate adjustments this year, as lower rates could potentially fuel inflation even as they provide economic stimulus. However, President Trump has been vocal in his demand for faster rate cuts and has criticized Powell. Notably, two of Trump’s appointees to the Fed have recently suggested they would consider cutting rates as early as the upcoming July meeting.
Reflecting on the potential implications of a new Fed Chair potentially influenced by the White House, Brian Jacobsen, chief economist at Annex Wealth Management, noted that falling yields, a weaker dollar, and rising break-even rates (an inflation expectation measure) all point towards the market viewing a politically beholden chair as potentially negative for inflation control. However, Jacobsen also highlighted that interest rate decisions are made by a committee of Fed officials, not just the chair, suggesting other members could act as a check on a new leader if necessary.
Internationally, stock markets presented a mixed picture. Indexes in Europe closed mixed, following a varied finish across Asia. Japan’s Nikkei 225 posted a solid 1.6% gain, while South Korea’s Kospi declined 0.9%, representing some of the larger moves in the region.
