For the 10th time this year, the S&P 500 closed at a new all-time high on Friday. This week, for the first time ever, the S&P 500 crossed 3,000, while the Dow Jones Industrial Average surpassed 27,000.
Here's why the market is flying high this summer.
Traders have been pushing stock prices higher in anticipation of the Federal Reserve lowering interest rates when it convenes July 30-31. This week, Federal Reserve Chair Jerome Powell said in prepared testimony before the House Financial Services Committee that the central bankers "would act as appropriate to sustain the expansion "—which Wall Street interpreted as further confirmation a rate cut is coming.
"Right now, the market is enthused by the prospect of the Fed cutting interest rates," says Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Wall Street wants the Fed to cut rates because the U.S. economy has weakened, and lower interest rates can help stimulate growth by making it cheaper for consumers and businesses to borrow money. If central bankers cut rates later this month, that will appease market participants and potentially prop up the stock market, Ma says, adding: "There's definitely a tightrope being walked."
It's pretty common to see a cluster of new highs in a short span, like the S&P 500's five records in July. Once the S&P 500 hits a new all-time high, another is often around the corner. That's partly because the stock market tends to close higher than lower on a daily basis—which has happened about 53% of the time since 2000, according to data analyzed by Grow.
Investor sentiment matters: "Enthusiasm can build on itself when market participants see the market hitting new highs," Ma says. "That can cause people to get a little more aggressive."
Just as "success begets success," clustering can also happen when stocks are falling. Historically, a series of new highs has sometimes preceded a pivot in the market, says Jamie Cox, managing partner for Harris Financial Group.
There also can be long stretches between records. There were 200-plus days separating an all-time high in April from the prior one in September, and a similarly long stretch prior to a cluster of new highs in August 2018, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
And it's worth noting that compared to other years, 2019 is actually on track for fewer all-time highs than the market's record-busting runs over the past six years.
The S&P 500, the benchmark for U.S. stocks, averaged almost 35 new highs each year in the 2013-2018 period. And during two standout years—with 62 records in 2017 and 53 in 2015—the S&P 500 set a new all-time high about once a week, on average, according to data analyzed by Grow.
The S&P 500 has jumped more than 9% since early June, putting the index up more than 20% this year. Where's the market headed from here? Depends on who you ask.
The multiweek period known as earnings season is coming up, when corporate America reports results, in this case for the second quarter of 2019. Earnings, or the measure of corporate profit, are projected to be weak for a second straight quarter, which could temper enthusiasm on Wall Street—and cause some bumpiness in the market.
Ma expects modest economic growth in the second half of the year partly because of slower earnings, along with lingering trade spats as businesses are more reticent to spend or invest. The stock market will likely see more subdued gains, as well. Wall Street also could be overestimating the potential impact the Fed will have to counteract slower economic growth, especially amid ongoing trade spats and as businesses pull back on spending and investing, he adds.
Meanwhile, Cox believes Wall Street is "underestimating the chance for a rebound in economic activity " in the second half of the year, which could propel stock prices higher. In addition, the summertime rally hasn't been broad-based—pharmaceutical stocks, for example, have fallen recently—which to him suggests the market's surge "has more room to go."
Record highs often draw in money from people trying to chase the market's surge, but Cox says most investors are better off focusing on what they can control—and tuning out the rest.
"The clustering of highs are not beneficial to you much," Cox says. You shouldn't alter your investment strategy as a result: "What most people need to do is basically forget the market exists and just keep investing."
More from Grow: