The S&P 500 closes at a record high as trade hopes and soft inflation fuel a summer rally

Just months after trade wars, inflation worries, and geopolitical flare‑ups rattled investors, the S&P 500 took another leap forward — closing at an all‑time high of 6,173.07 on Friday (above February’s record). This marks back-to-back days testing fresh highs, a clear sign that investor sentiment is riding the crest of renewed optimism.

The gains build on Thursday’s surge, when the index cracked a four-month-old ceiling and reignited talk of a sustained bull run. Early in Friday’s session, the index climbed past its February peak (6,147.43) for the second straight day, fueled by a potent mix of enthusiasm around AI and economically friendly signals from the Fed. Investors cheered stronger-than-expected trade headlines, dovish Fed rhetoric, cooler inflation data, and solid AI-tech earnings that powered megacap stocks. Add in easing tensions in the Middle East, and sentiment has been riding high.

However, the mood softened mid‑day when President Donald Trump abruptly terminated trade negotiations with Canada, citing its digital services tax on U.S. tech companies and even hinting at renewed Iran options — comments that throttled momentum and triggered a modest pull‑back. Despite this, the index managed a 0.5% gain on the day, underscoring how resilient bullish sentiment has become.

A newly formalized U.S.-China agreement to expedite rare-earth exports and ease restrictions on advanced chip technologies continues to quell global trade anxiety, giving a lift to industrial and tech sectors — a breakthrough that comes alongside news that the U.S. is advancing trade deals with at least 10 other countries. The momentum on trade, especially in sectors sensitive to supply chains and tariffs, gave investors another reason to wade back into riskier assets. And May’s inflation data came in benign, reinforcing traders’ bets that the Fed may cut interest rates later this year.

A ceasefire between Israel and Iran — still fragile, but holding — has helped cool oil prices, deflating one of the summer’s most persistent market risks and triggering a sigh of relief by Wall Street after weeks of geopolitics whipsawing portfolios. The price of crude fell more than 6% across two sessions earlier this week, in the sharpest two-day slide since March 2022, offering relief to inflation-watchers and equity bulls alike.

That cooling of Middle East tensions helped deflate one of the summer’s biggest market risks, while a weaker U.S. dollar — now at a three-year low — further eased pressure on equities. Bond yields, too, have drifted lower in recent sessions.

The Dow Jones Industrial Average was up 432 points, or about 1%, on Friday, while the Nasdaq was up about 0.5%. Underpinning the rally is a market narrative that’s shifted — once again — toward soft landing optimism. 

Fed Chair Jerome Powell reiterated this week that the central bank remains “data dependent” and continues to signal a “wait-and-see” stance on interest-rate cuts, confirming that officials will rely on data that shows the impact of President Donald Trump’s tariffs. Investors are softly pricing in a July rate cut — still seen as unlikely with around 20% odds — but are now pricing in better-than-even odds of a move by September (over 50%).

Fresh inflation data released Friday morning showed core PCE rose just 0.1% in May — a signal that price pressures continue to cool, and a key factor behind the market’s growing rate-cut bets. With inflation easing and labor markets showing just enough softness to justify a dovish pivot, investors are warming back up to the idea that the Fed might actually stick the landing.

Under the surface, earnings season has continued to deliver just enough good news to sustain the rally. At current levels, the S&P 500 is trading about 22 times forward earnings — high by historical standards, but not outrageous in a low-rate world that still favors growth over value.

Big Tech, in particular, remains a pillar of strength, with Nvidia stock again hitting record highs this week. The AI-fueled enthusiasm hasn’t faded, and investors appear content to ride the momentum even as valuations stretch. Altogether, tech now makes up more than a third of the index, and its strength has largely masked weakness elsewhere.

That masking matters. The rally’s breadth remains thin: About one-third of S&P 500 stocks are still trading below their 50-day moving averages, signaling that much of the recent upside has been concentrated in a few familiar names. Small-cap stocks, too, have been left out. The Russell 2000 is still down for the year, and the Dow has underperformed, as well. Investors may be chasing growth, but they’re not betting broadly on the economy. Interest-rate-sensitive sectors — such as regional banks, industrials, and materials — lag, pointing to skepticism that the expansion will persist beyond 2025.

And while some data points to cooling inflation, the broader economy isn’t firing on all cylinders. Job openings have fallen, wage growth is slowing, and delinquencies are on the rise — hinting that the landing could still get bumpy. The Fed may not have the luxury of waiting for ideal conditions if those cracks widen, and that complicates the central bank’s calculus heading into the third quarter.

Analysts at UBS have warned that markets are priced for perfection heading into a potentially volatile summer. Any slip — whether from macroeconomic data, a surprise Fed move, or new geopolitical flare-ups — could trigger a sharp repricing. BCA Research’s Peter Berezin went further, suggesting a 25% pullback isn’t out of the question if economic conditions weaken or the Fed keeps rates elevated longer than expected.

In the meantime, investors are watching closely. 

Friday’s record close gives the S&P 500 a long-awaited exclamation point. Whether the next leg is fueled by fundamentals or just froth in fancy, new packaging remains to be seen. But for now, the bulls are walking tall and balancing with confidence — just don’t look down.