The Stock Market Got a Rate-Cut Boost. Where It’s Headed Next.

A trader at the New York Stock Exchange on Sept. 17. (Michael M. Santiago/Getty Images)

Key Points

About This Summary

• Stocks are on track to close the week at new highs, with the S&P 500, the Dow, and the Nasdaq all advancing.
• The Federal Reserve cut interest rates by a quarter-point, a widely expected move that boosted market confidence.
• Simultaneous peaks in key S&P 500 sectors signal a healthy, broad-based bull market rally, according to SentimenTrader.

This past week was one where everything went right. Expect the good times to continue for at least a while longer.

The S&P 500 index gained 1.2% in the week, while the Dow Jones Industrial Average advanced 1.1% and the Nasdaq Composite rose 2.2%. All three closed the week at new highs on Friday, the sixth for the Dow this year, the 27th for the S&P, and the 28th for the Nasdaq. Small-caps joined the party, too, with the Russell 2000 hitting its first record of 2025 on Thursday.

Celebrations were in order. The Federal Reserve finally cut interest rates, and while the decision to lower them by a quarter-point wasn’t a surprise, it hit the mark. No surprise half-point cut emerged to spark concern, and while some were hoping for more consensus about future cuts, Fed Chair Jerome Powell “expressed confidence in the current state of the U.S. economy and financial conditions,” notes DataTrek Research co-founder Nicholas Colas. “The Chair’s comments here were his most bullish but also his shortest.”

Created with Highcharts 9.0.1Market SnapshotSource: FactSet

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To wit, Powell wouldn’t opine on whether a rate cut would further fuel a speculative stock bubble—maybe a good thing, given how Alan Greenspan’s “irrational exuberance” comments turned out—but the composition of the rally is reassuring. As SentimenTrader highlights, the S&P 500’s new record came alongside new simultaneous peaks for its key sectors, as the Technology Select Sector SPDR, Communication Services Select Sector SPDR, and Consumer Discretionary Select Sector SPDR exchange-traded funds also hit new highs. This kind of broad-based rally is a healthy one for markets, “where growth-oriented sectors take the lead as the ‘vanguard,’ with other economically sensitive sectors (such as financials and industrials) following closely,” the firm wrote.

S&P 500 breakthroughs tend to be narrow—often, they’re led by only one or two sectors hitting new highs simultaneously—so this week’s trifecta represents a “significant upgrade in market participation—a typical feature of historically healthy, broad-based bull market rallies,” writes SentimenTrader. In the 86 times when that has happened previously, the market tends to be higher a year later nearly three-quarters of the time, with a median return of more than 8%, “demonstrating a certain degree of robustness as a long-term trend indicator.”

We don’t want to pretend there aren’t concerns. The job market is still weakening. President Donald Trump is still tariffing. Stocks are still expensive. Powell himself said that risk-free paths don’t exist and that policymakers are still walking a tightrope.

Even yields on 10-year Treasuries have moved higher, snapping a four-week falling streak, as investors, including those hoping for a more dovish tone, repositioned their holdings and weighed other economic data.

The latter, though, shouldn’t worry investors for now, says 22V Research’s Dennis DeBusschere. He notes that the 10-year yield and stocks should move in the same direction as recession risks fade, at least until the 10-year gets back to 4.5%, the level that caused problems in the recent past. But with yields at just 4.14%, that’s a problem for the future.

For now, let the party continue.

Write to Teresa Rivas at teresa.rivas@barrons.com