Wall Street rallies as Fed rate cut hopes and geopolitical calm boost investor confidence

Wall Street rallies as indices near record highs

Wall Street closed decisively higher on Thursday, with the Dow Jones gaining 0.94% while the S&P 500 advanced 0.80%. The technology-heavy Nasdaq 100 posted a 0.97% gain, bringing all three major indices closer to their recent record highs.

The rally represented a broad-based advance across multiple sectors, with market breadth showing particularly encouraging signs. New York Stock Exchange (NYSE) advancing stocks outnumbered declining issues by nearly five to one, indicating widespread participation in the upward move rather than narrow leadership.

Both the S&P 500 and Nasdaq approached but narrowly missed setting fresh record highs during the session. This near-miss performance suggests that momentum remains strong, with markets poised for potential breakouts to new territory if current trends continue.

Federal Reserve rate cut expectations drive market sentiment higher

Market optimism has been significantly boosted by growing expectations that the Federal Reserve (Fed) will implement interest rate cuts this year. Traders are currently pricing in approximately three rate cuts over the coming months, with specific probabilities emerging for near-term policy moves.

The probability of a July rate cut stands at around 21%, while markets are assigning a 75% chance of the first reduction occurring in September. These expectations have been shaped by recent weak economic data and dovish commentary from several Fed officials.

Geopolitical developments provide market stability

The Israel-Iran ceasefire has been holding, contributing to reduced geopolitical tensions and supporting broader market confidence. This development has helped ease concerns about potential supply disruptions and regional instability that had previously weighed on investor sentiment.

Oil markets have reflected this improved geopolitical environment, with crude oil prices steadying despite posting significant weekly declines of over 10%. Brent crude oil  traded at $68.12 per barrel while West Texas Intermediate (WTI) settled at $65.63, indicating reduced supply fears.

Sector rotation and individual stock movements

Bank stocks rallied strongly after the Fed proposed relaxing leverage rules, providing a significant boost to the financial sector. This regulatory development could improve profitability prospects for major banking institutions and has been well-received by investors.

Copper prices reached three-month highs, driving substantial gains in mining stocks. Freeport-McMoRan surged 6.8% while Southern Copper advanced 7.8%, reflecting the positive impact of commodity price strength on resource sector valuations.

Technology stocks showed mixed performance despite the broader rally. Micron Technology fell 1% despite beating earnings expectations with its forward guidance, highlighting how even positive fundamental news doesn't guarantee immediate stock price appreciation.

Global markets join the rally as US dollar weakens

Asian markets have hit their highest levels in over three years, with Japan's Nikkei 225 surpassing 40,000 for the first time in five months. The CSI 300 index is tracking towards its biggest weekly gain since November 2024, reflecting improved sentiment across the region.

European markets are positioned to join the global rally, with STOXX Europe 600 and DAX 40 futures advancing more than 0.5%. This coordinated global strength suggests that the positive momentum extends well beyond US borders and reflects broader international confidence.

The United States (US) dollar continues to weaken, sitting near three-and-a-half-year lows and set for a 1.4% weekly loss. US dollar weakness of over 10% year-to-date could represent the biggest first-half decline since the 1970s, providing additional support for international investments.