The Stock Market Hits a Record as Fed Cut Bets Gain Momentum

Stock markets looked set to start higher on Friday, following a global rally that sent the MSCI world equity index to a new all-time high. Investors gained confidence from signs of cooling geopolitical risks and growing expectations that the U.S. Federal Reserve will soon begin cutting interest rates.

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Stock futures in Japan, Australia, and Hong Kong pointed higher in early Friday trading after U.S. equities posted solid gains. The S&P 500 rose by 0.8%, approaching another record close, while the tech-heavy Nasdaq 100 climbed 0.9%, pushing the MSCI global equity benchmark to an all-time high. U.S. stock futures showed modest gains early Friday, suggesting continued momentum.

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Bond markets also rallied, with U.S. Treasuries gaining ground across the yield curve. Traders now fully expect the Fed to lower interest rates twice before the end of the year and are increasingly pricing in the possibility of a third cut. These expectations were strengthened by recent U.S. economic data, which painted a picture of slowing growth but also falling inflationary pressures.

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“The market is back near record levels because some of the major uncertainties are starting to ease,” said Paul Stanley of Granite Bay Wealth Management. “Progress on trade talks and signs of reduced tensions in the Middle East are making investors more comfortable.”

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Fueling the optimism was fresh U.S. data pointing to a potential slowdown in inflation and economic activity. Consumer spending in the first quarter posted its weakest growth since the COVID-19 pandemic began, and gross domestic product was revised downward to an annualized growth rate of just 0.5%.

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Additionally, continued jobless claims—those filing for unemployment benefits week after week—rose to their highest level since 2021, even though new claims decreased slightly.

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The Bloomberg Dollar Spot Index fell 0.5% on Thursday as U.S. bond yields declined, which in turn supported gains in the Japanese yen and emerging market currencies. The softer dollar reflects investor bets that U.S. interest rates are heading lower.

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Oil prices remained relatively steady, with West Texas Intermediate (WTI) crude up 0.5% on Thursday. That marked the smallest daily move this week, signaling calmer sentiment regarding geopolitical developments in the Middle East.

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Meanwhile, the broader market reaction across asset classes shows investors are shifting focus from short-term geopolitical risks and trade disputes to longer-term drivers like monetary policy and economic fundamentals.

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Adding to the positive sentiment was news that the U.S. and China have finalized a trade understanding after discussions last month, according to U.S. Commerce Secretary Howard Lutnick. While full details were not disclosed, the announcement contributed to the sense that global trade tensions are cooling.

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Separately, the U.S. Treasury Department reached a deal with G-7 nations that will see U.S. companies excluded from certain international tax measures. In exchange, President Donald Trump’s proposed “revenge tax” will be dropped from the administration’s tax plan. This agreement reduces the threat of retaliatory taxes and eases concerns for multinational corporations.

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Despite market enthusiasm, several Federal Reserve officials emphasized the need for caution. San Francisco Fed President Mary Daly, speaking on Bloomberg Surveillance, said there’s growing evidence that tariffs may not lead to sustained inflation—but she still wants more confirmation before supporting a rate cut, potentially not until autumn.

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Richmond Fed President Tom Barkin warned that tariffs could still push prices higher, justifying a wait-and-see approach. Boston Fed President Susan Collins also sees a rate cut likely this year, but suggested July may be too soon.

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Economists expect the Fed’s preferred inflation metric, the core personal consumption expenditures (PCE) index, to rise just 0.1% in May. That would mark the softest three-month stretch of core inflation since the pandemic began in 2020. “The rally is being powered by hopes that inflation is cooling and the Fed can begin cutting soon,” said Haris Khurshid, CIO at Karobaar Capital. “But if growth doesn’t rebound or earnings miss expectations, this surge could fade quickly.”

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Key Market Movements

Here’s a snapshot of major market activity:

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Equities

• S&P 500 futures held steady as of 7:24 a.m. in Tokyo.
• Hang Seng futures were also largely unchanged.
• Australia’s S&P/ASX 200 futures climbed 0.6%.

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Currencies

• The Bloomberg Dollar Spot Index dropped 0.5%.
• The euro hovered at $1.1692.
• The Japanese yen traded at 144.48 per dollar.
• Offshore Chinese yuan was flat at 7.1627 per dollar.
• The Australian dollar was steady at $0.6547.

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Cryptocurrencies

• Bitcoin dipped 0.6% to $107,168.2.
• Ether slipped 1% to $2,420.86.

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Commodities

• West Texas Intermediate crude edged up 0.3% to $65.41 a barrel.
• Spot gold declined 0.2% to $3,322.04 an ounce.

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On the economic front, Asia awaits key data, including Japan’s retail sales and Tokyo’s inflation figures, trade numbers from the Philippines, and industrial profit data from China. Markets in Indonesia and Malaysia will remain closed for holidays.

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While optimism reigns in markets for now, analysts caution that macroeconomic and policy risks—such as tariff impacts and inflation surprises—could still fuel volatility in the months ahead.

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