After some bumpiness in the stock market this spring, the S&P 500 closed at a new all-time high Thursday, surpassing a previous record from April.
In a five-week span between late April and early June, the S&P 500, an index that tracks the 500 largest publicly traded U.S. companies, tumbled 6.8%—only to bounce back in just under three weeks. As of Thursday afternoon, it’s now up almost 18% year to date.
The Federal Reserve has been a big driver behind the market’s surge. Earlier this month, investors got excited when Federal Reserve Chair Jerome Powell signaled in a speech that the Fed could cut interest rates to sustain the economic expansion. Then this week, even though policymakers left rates unchanged after their meeting, Powell said some of his counterparts believe the case for a rate cut is strengthening.
Wall Street wants the Fed to cut rates because traders are worried the economy is slowing, and lower interest rates can stimulate growth because they make it cheaper for consumers and businesses to borrow money.
Another positive for the market? Wall Street is optimistic about a possible trade deal between the U.S. and China. President Donald Trump said he will meet with Chinese President Xi Jinping at the G20 summit that begins next week. Market-watchers hope that could be a turning point, after both countries imposed retaliatory tariffs on goods imported from the other in May.
Tom Martin, senior portfolio manager at Globalt Investments, points out that trade and interest rates have been moving the markets throughout the spring. When Wall Street worried about them, markets went down; now that there’s cause for optimism on both fronts, markets are going up again.
“Fed talk moves the market,” agrees Mark DeVaul, equity portfolio manager of the Hennessy Equity and Income Fund, and he warns that that could cause more turbulence ahead. That’s because Wall Street is expecting more aggressive rate cuts by the Fed than policymakers have signaled at this point.
The Fed sets a benchmark interest rate called the federal funds rate, which influences the rates banks charge you on products like credit cards, auto loans, or mortgages. Traders are betting there’s a roughly 70% chance that rate—currently set at 2.25% to 2.5%—will be below 1.75% by the end of the year. That equates to three rate cuts—a big jump from the Fed’s forecast of just one in 2020.
“There continues to be risk around what the Fed is going to do,” DeVaul says. If the Fed remains more cautious than Wall Street would like it to be, traders could end up disappointed.
That’s not all, Martin points out: “The jury is out on where the economy is going.” The latest employment report showed that job growth lagged in May, and there are other signs of a broader global slowdown.
Still, for now, the market seems to have stabilized and to be trending up again.
It’s exciting to learn that your investments are performing well. Regardless, though, experts recommend you don’t overreact to the news and instead continue to add money to your investment accounts regularly, no matter if the market’s at a new high—or low. Remember that you’re largely in this for the long haul.
“Investors need to understand what their goals are for their money,” Martin says. “What they need it for, when, and how much risk they’re willing to take.” Don’t need that money for years, or even decades? “Stay the course,” Martin advises.
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