Wall Street concluded the week on a high note, with the S&P 500 and Nasdaq Composite closing at fresh record highs. This surge came despite initial concerns over escalating geopolitical tensions, highlighting the market’s focus on economic fundamentals like energy prices and interest rate expectations. The swift pullback in oil prices and growing optimism for potential Federal Reserve rate cuts by year-end were key drivers behind the rally.
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Market Rally Driven by Geopolitics and Economic Signals
The week began with markets initially reacting to news of U.S. military action in Iran. While geopolitical risks can often rattle investors, the market quickly digested the news, betting that the conflict would not pose a systemic risk to the U.S. economy or significantly impede corporate earnings growth. Historically, such military actions tend to have transient market impacts unless they signal a wider threat to growth or inflation.
Energy prices, which had surged the prior week, saw a significant reversal. West Texas Intermediate (WTI) crude oil plunged sharply early in the week, ending down over 11% for the period and snapping a three-week winning streak. This decline was crucial, as energy costs represent a major input for businesses and a significant expense for consumers. The quick drop eased concerns that rising oil prices would squeeze profit margins or dampen consumer spending by forcing budget cuts on discretionary items like dining out or shopping.
Rate Cut Expectations Shift Amidst Inflation Data
Beyond geopolitical developments, shifting expectations for Federal Reserve interest rate policy remained a central focus for investors. Despite some cautious commentary from Fed officials, including Chairman Jerome Powell, investors increased the perceived likelihood of seeing three Fed rate cuts before the end of the year, up from just two expected a week prior, according to the CME FedWatch Tool.
However, fresh inflation data released late in the week presented a mixed picture. The May personal income and spending report, which includes the Personal Consumption Expenditures (PCE) price index – the Fed’s preferred inflation gauge – showed the headline figure aligning with expectations. Headline PCE rose 0.1% month-over-month and 2.3% year-over-year. The core PCE rate, which excludes volatile food and energy prices and is closely watched by the Fed for underlying inflation trends, came in slightly hotter than anticipated, increasing 0.2% month-over-month and 2.7% annually – both one-tenth of a percentage point above forecasts. This slightly warmer core reading adds a layer of complexity to the argument for a near-term rate cut, such as in July.
Record Performance and Key Sector Insights
The market’s resilience led to strong weekly gains. The S&P 500 rose 3.44% for the week, marking its first positive week in three. It is on track for a 4.42% gain for June and a 10% return for the second quarter, potentially its best quarter since Q1 2024. The Nasdaq saw an even stronger week, climbing 4.25%, putting it on pace for its third consecutive positive month with a 6% gain in June and its best quarter since Q2 2020 with a 17.2% gain quarter-to-date.
Within the market, several sectors and individual stocks stood out. The continued strong demand outlook for artificial intelligence (AI) and data centers provided significant tailwinds for related companies.
Stock market chart showing upward trend
Nvidia continued its upward trajectory, hitting new all-time highs. Analysts are increasingly bullish, citing strong purchase intentions from large cloud providers (hyperscalers), the intense computing power required for AI models, and rising demand from the adoption of AI agents. With a market capitalization now exceeding $3.8 trillion, one analyst firm assigned a $250 price target, implying significant upside.
Other companies benefiting from the robust AI and data center environment include Eaton, GE Vernova, and Broadcom. Eaton provides power management solutions critical for data centers, GE Vernova focuses on energy technology, and Broadcom is a key supplier of semiconductors and infrastructure software. Broadcom also received an analyst upgrade this week. These three stocks were among the top performers alongside Nvidia.
Financial stocks also received positive news when the Federal Reserve proposed lowering capital requirements for large U.S. banks implemented after the 2008 financial crisis. This potential change could allow banks like Goldman Sachs and Wells Fargo to increase lending and make bond purchases more easily. Goldman Sachs was another top performer for the week.
Diverse group of investors observing market data
Other notable company developments included Amazon, where investors continue to assess the opportunities in areas like online grocery leveraging its vast logistics network, and the potential impact of integrating generative AI, robotics, and autonomous vehicles.
In healthcare, Eli Lilly shares advanced despite mixed data on its experimental weight-loss drug, bimagrumab, which aims to preserve muscle mass. Abbott Laboratories received a boost from comments by a government official suggesting a push for increased use of wearable health devices, a trend that could also benefit companies like Apple with health-focused features in products like the Apple Watch.
Mark Zuckerberg speaking about AI investment
Apple itself remains a strong company, though some believe its capital allocation strategy could be optimized by potentially shifting focus from share buybacks towards increased investment in AI research and development, talent acquisition, or strategic startup acquisitions.
Outlook: Watching Inflation and Fed Signals
The coming week marks the end of June and the second quarter, often a time for portfolio adjustments and reflection on performance. Looking ahead, investors will continue to closely monitor inflation data, particularly the core PCE, and listen for any further signals from the Federal Reserve regarding the timing and pace of potential interest rate cuts. Geopolitical developments, while seemingly less impactful this week, always remain a potential market factor. The performance of energy prices and their implications for both corporate margins and consumer spending will also be key indicators to watch.
For more detailed analysis on specific stock movements and portfolio strategies, explore our related articles.
