The Dow Jones Industrial Average celebrated a historic milestone on Friday, marking its first record close of 2025. This impressive achievement was accompanied by a notable rally in small-cap stocks and U.S. Treasuries, as investors reacted positively to comments from Federal Reserve Chair Jerome Powell. Powell provided the clearest indication yet that the central bank may implement interest rate cuts in September, which fueled optimism in the market. The Dow surged by an impressive 846 points, translating to a 1.9% increase. Meanwhile, the S&P 500 recorded a gain of 1.5%, and the Nasdaq Composite rose 1.9% higher, signaling a broad-based rally across major indices.
The strong performance of the S&P 500 was particularly notable following a five-day losing streak. Jonathan Krinsky, Managing Director and Chief Market Technician at BTIG, remarked, "We thought a bounce was likely, but today's action is certainly more than a bounce. We will therefore respect this action and as long as SPX remains above ~6400, put our cautious view on the back burner for now." His comments reflect a growing sense of confidence among investors regarding the market's trajectory.
The gains in the market were triggered by Jerome Powell's speech on Friday morning at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming. During his remarks, Powell downplayed concerns about inflation while highlighting the current softness in the labor market. His insights have helped solidify expectations that the Federal Reserve will likely cut interest rates by a quarter-point during its upcoming meeting on September 16-17. Lower interest rates generally make borrowing more affordable for businesses, enabling them to hire more workers and pursue growth opportunities, despite the potential for rising prices of goods and services.
Investor enthusiasm for potential earnings, particularly in growth stocks, contributed to the upward momentum in the market. The Russell 2000 Index, which tracks small-cap stocks, experienced a remarkable rise of nearly 4% on Friday. Furthermore, U.S. Treasuries also saw a rally, with yields on the 10-year and 2-year Treasury notes falling to 4.258% and 3.689%, respectively. Notably, prices and yields move inversely, indicating a positive reception among investors.
In contrast, the U.S. dollar experienced a decline of nearly one percent. This drop was anticipated, as a nation's currency typically weakens in response to indications of lower interest rates, prompting foreign investors to seek more attractive returns elsewhere. Additionally, the VIX, often referred to as the "fear gauge" of Wall Street, closed at its lowest level for 2025, highlighting a period of reduced uncertainty in the market.
Overall, Friday proved to be an exceptional day for the markets, though analysts caution that replicating such gains may be challenging. The market has largely factored in the possibility of a rate cut in September, and expectations for deeper cuts throughout 2025 may be overly optimistic. In the coming week, the U.S. Treasury will conduct auctions for 2-year, 5-year, and 7-year notes, providing further insights into the bond market. Investors will also be keen to analyze the upcoming reports on U.S. durable goods orders and the latest consumer confidence numbers.
Corrections & Amplifications: The S&P 500 finished just 0.03% shy of a record close. An earlier version of this article incorrectly stated it marked a new closing high.
