TLDR
- The S&P 500 reached all-time highs for the first time since February, rising 3.5% in the final week of June
- Markets are pricing in a 93% chance of Federal Reserve rate cuts by September, up from 70% chance a week ago
- June jobs report expected Thursday shows 116,000 new payrolls and unemployment rising to 4.3%
- Stock markets close early Thursday and remain closed Friday for Independence Day holiday
- Investors watching Congress for passage of Trump’s budget bill before July 4 deadline
The S&P 500 returned to record territory for the first time since February as investors celebrated growing optimism around Federal Reserve interest rate cuts. The benchmark index closed the final week of June with a 3.5% gain, while the Nasdaq Composite surged over 4.1%.
Both indexes finished the week at all-time highs. The Dow Jones Industrial Average added approximately 3.8% during the same period.
The market rally comes as investors shift their focus to Thursday’s June employment report. Economists expect employers added 116,000 nonfarm payrolls during the month, down from 139,000 in May.
The unemployment rate is forecast to rise to 4.3% from the previous month’s 4.2%. These numbers will provide fresh insight into the labor market’s direction at a critical time for monetary policy.
Federal Reserve Rate Cut Expectations Surge
Market expectations for Federal Reserve rate cuts have increased dramatically in recent weeks. As of Friday, traders were pricing in an 18.6% chance of a rate cut at the July meeting, up from 14.5% the previous week.
The probability of a rate cut by September has jumped to 93% from 70% just one week earlier. This shift reflects growing confidence that the central bank will begin easing monetary policy soon.
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
Federal Reserve Governor Michelle Bowman recently noted that while the labor market shows strength, it “appears to be less dynamic.” She emphasized the need to focus on downside risks to employment given inflation’s trajectory toward the 2% target.
Fed Chair Jerome Powell has maintained a more cautious stance on rate cuts. During testimony before House lawmakers, Powell stressed that the central bank is “well-positioned to wait” before adjusting interest rates.
EY chief economist Greg Daco believes the Fed will likely cut rates in September. He expects to see more demand erosion and labor market slowing by then, leading to reduced consumer spending activity.
Employment Data Under Close Watch
The upcoming jobs report carries extra weight as economists look for signs of labor market cooling. Wells Fargo economists expect the moderation in hiring to continue due to muted demand for new workers.
They cite ongoing uncertainty, restrictive monetary policy, and the federal government hiring freeze as factors contributing to slower job growth. These conditions have created an environment where employers remain hesitant to expand their workforce.
The S&P 500’s recent record comes after a rally of more than 23% from its April 8 bottom. Strategists believe the market’s largest tariff fears are now behind investors.
Economic forecasts have begun improving again, along with projections for corporate earnings this year. Wall Street strategists are becoming more optimistic about the market outlook going forward.
Charles Schwab’s Joe Mazzola noted that the market maintains bullish sentiment. He believes investors are looking for opportunities to buy during pullbacks.
Markets will close early on Thursday at 1 p.m. and remain shut Friday for the Independence Day holiday. Investors will also monitor Congress as it works to pass President Trump’s budget bill before his July 4 deadline.
Tesla is expected to report June delivery data on Wednesday, providing insight into the electric vehicle maker’s first-half performance. Constellation Brands will report earnings Tuesday after trimming its outlook in the previous quarter.
