Equity Markets Continue within a “Path of Least Resistance” Framework
Over the last week, investors followed a path of least resistance bidding equity markets higher, driven by second-quarter earnings, further fueled by expectations of an upcoming Fed rate cut.
This week a number of equity benchmark indexes exhibited new, all-time highs (ATH):
- The S&P 500 Index achieved its 16th ATH in 2025. This index is up 10.8% year-to-date (YTD).
- The NASDAQ Composite Index captured its 19th ATH in 2025. This technology-laden index has risen 12.9% YTD.
- The Nikkei 225 Index surpassed 43,000 for the first time in its history which set a new ATH, its second in 2025. The index has risen 17.1% YTD.
For the week, the S&P 500 increased 2.0%, the NASDAQ advanced 2.2% while the Nikkei surged 6.3%. Bonds rose 0.2%.
Second-Quarter Earnings Season is Winding Down
While concerns about valuations may be rising, support may be ascribed to expectations of continued earnings growth and analyst sentiment. For the second-quarter, according to LSEG I/B/E/S:
- 80% of the companies comprising the S&P 500 Index have reported. The actual reported year-over-year (YOY) growth in earnings currently stands at 9.7%. When blended with those companies yet to report, analysts project YOY growth in earnings of 12.1%.
- 62% of the companies comprising the Russell 2000 Index have reported, and the actual reported YOY growth in earnings currently stands at 14.8%. When blended with those companies yet to report, analysts project YOY growth in earnings of 73.7%.
- 82% of the companies comprising the MSCI EAFE Index have reported. The actual reported YOY growth in earnings currently stands at 5.9%. When blended with those companies yet to report, analysts project YOY growth in earnings of 6.6%.
What Will the Fed Do?
Markets anticipate the Fed will cut its benchmark Federal Funds rate by a quarter-point at its September meeting. Traders of contracts tied to the Funds rate put the odds of a rate cut at 93.8%, according to estimates calculated by the CME Group’s FedWatch.
Supporting this expectation was the release of July’s Consumer Price Index, which increased 0.2%, in-line with consensus expectations, after rising 0.3% in June. Shelter rose 0.2%, while the energy index fell 1.1%, and the food index remained unchanged.
U.S. nonfarm labor productivity increased 2.4% during the second quarter of 2025 after declining 1.8% the prior quarter. This rise was attributed to a 3.7% increase in output coupled with a 1.3% increase in hours worked.
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Sources: BTC Capital Management, FactSet Research Systems Inc., LSEG I/B/E/S, S&P Global, FTSE Russell, MSCI Inc., CME Group Inc., U.S. Bureau of Labor Statistics.
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