The Week Ahead: Stock Market Hits Record Highs on Fed Rate Cut Optimism

TLDR

Table of Contents

S&P 500 and Nasdaq hit record highs in final June week with gains of 3.5% and 4.1% respectively
Federal Reserve rate cut probability for September jumps to 93% from 70% in one week
Thursday’s June jobs report forecasts 116,000 payroll additions and 4.3% unemployment rate
Markets close early Thursday and stay shut Friday for July 4th holiday
Trump’s budget bill deadline and tariff negotiations remain in focus for investors

Major U.S. stock indexes climbed to fresh all-time highs last week as investors grew increasingly confident about upcoming Federal Reserve interest rate reductions. The benchmark S&P 500 posted its strongest week since early spring with a 3.5% advance.

The technology-heavy Nasdaq Composite outpaced other indexes with a 4.1% weekly gain. The Dow Jones Industrial Average contributed to the broad-based rally by adding 3.8% over the five-day period.

This marked the first time since February that the S&P 500 reached record territory. The index has now climbed more than 23% from its April low point.

Market participants are turning their attention to Thursday morning’s June employment figures. The Bureau of Labor Statistics will release the monthly jobs report at 8:30 a.m. Eastern time.

Economists surveyed by major financial institutions expect the report to show 116,000 new jobs were created last month. This would represent a decline from May’s 139,000 payroll additions.

Rate Cut Expectations Reach New Heights

Futures markets are now pricing in a 93% probability that the Federal Reserve will lower interest rates by its September meeting. This represents a sharp increase from the 70% chance investors were betting on just one week ago.

JUST IN 🚨: The odds of an interest rate cut by the September FOMC have soared to 94% 🥳🫂 pic.twitter.com/C1PCODn0W0
— Barchart (@Barchart) June 26, 2025

The immediate July meeting odds have also improved, with an 18.6% chance of a cut compared to 14.5% previously. These shifting expectations reflect growing belief that economic conditions warrant monetary policy easing.

Several Fed officials have recently signaled openness to rate reductions. Governor Michelle Bowman highlighted concerns about labor market dynamics during a June 23 speech.

Bowman stated that while employment remains strong, the job market “appears to be less dynamic.” She emphasized the importance of monitoring downside employment risks as inflation moves toward the Fed’s 2% target.

Fed Chair Jerome Powell has maintained a more measured approach regarding timing. During recent congressional testimony, Powell indicated the central bank remains “well-positioned to wait” before making policy changes.

Private sector economists are split on timing expectations. EY’s Greg Daco predicts September as the most likely starting point for rate cuts, citing anticipated demand weakness and slower income growth.

Labor Market Cooling Signs Emerge

The upcoming employment report carries heightened importance as economists search for evidence of job market softening. Multiple indicators suggest hiring momentum may be slowing across various sectors.

Wells Fargo’s research team expects continued moderation in new worker demand. They point to persistent uncertainty, tight monetary conditions, and federal hiring restrictions as contributing factors.

The unemployment rate is projected to tick higher to 4.3% from June’s 4.2% reading. Even small increases in joblessness could influence Federal Reserve decision-making in coming months.

Average hourly earnings growth is expected to moderate slightly on both monthly and annual bases. Wage growth trends provide another key metric for policymakers assessing economic conditions.

Market strategists believe recent stock gains reflect reduced concerns about trade policy impacts. Corporate earnings forecasts have improved alongside broader economic projections for the remainder of 2025.

Charles Schwab’s trading desk reports continued investor appetite for equity purchases during market pullbacks. This suggests underlying confidence in the economic outlook remains intact.

Congressional leaders are working to finalize President Trump’s comprehensive budget legislation before the July 4 deadline. The package’s passage could influence market sentiment in coming sessions.

Constellation Brands will report quarterly results Tuesday, while Tesla’s June vehicle delivery numbers are expected Wednesday. Both companies face scrutiny after recent operational challenges.

Trading hours will be shortened Thursday with markets closing at 1 p.m. Eastern time ahead of the Independence Day holiday.

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