Stock Market Record Highs: the 4 Catalysts Driving Gains in S&P 500

The S&P 500 rose to clinch a fresh record for the first time in four months on Friday.

After narrowly missing the intraday and closing records in Thursday’s session, the benchmark index climbed as high as 6,187.68, its highest level since February.

Here’s where major indexes stood at 12:40 p.m. ET on Friday:

Here are the four things that inspired the latest rally to record highs.

1. US-China trade deal

The US and China finalized a framework agreement that involves China approving exports for rare earth minerals, while the US dials back some of its restrictions on high-tech exports to China.

President Donald Trump said both nations had signed the deal at an event in the White House on Thursday. China’s Commerce Ministry confirmed the framework agreement and its details in a statement Friday morning.

The deal is a confidence boost for investors, who have been eyeing US-China trade relations anxiously since Trump threatened to impose as much as a 145% tariff on Chinese goods in April.

Commerce Secretary Howard Lutnick also said the US had 10 trade agreements with other countries on the way, with plans to finalize those deals within the next few weeks.

“We’re going to do top 10 deals, put them in the right category, and then these other countries will fit behind,” Lutnick told Bloomberg.

2. Israel-Iran conflict subsides

Markets breathed a sigh of relief this week after President Donald Trump announced a truce between Israel and Iran, alleviating concerns that conflict in the Middle East could spill over into the region and lead to a disruption of oil flows that could hobble the world economy.

Conflict between the two nations continued after Trump announced his cease-fire. But the announcement has been enough to quell investors’ worst fears — particularly fears of an oil supply disruption, which briefly spiked the price of crude and fanned worries about hotter inflation.

Oil prices are down from their highs earlier this month. Brent crude, the international benchmark, traded around $65 a barrel on Thursday, down 11% from its peak on June 20 and down 13% from levels at the start of the year.

West Texas Intermediate crude traded around $66 a barrel on Thursday. That’s down 12% from its peak in the heat of the Israel-Iran conflict, and down 9% from levels at the start of the year.

3. Dovish Fedspeak, new data fuel rate-cut bets

Investors grew more bullish on the prospect of interest rate cuts, particularly after the latest round of economic data and supportive comments from Fed officials..

Consumer spending, which accounts for around two-thirds of economic growth, dropped 0.1% in May, the first time spending has declined since the start of the year.

Meanwhile, PCE inflation, the Fed’s preferred measure for price growth, rose 0.1% in May to an annualized rate of 2.3%. Both figures are in line with economists’ expectations, giving markets faith that the central bank has room to loosen its policy.

Investors see a 27% chance the Fed could cut rates another quarter-point at its July policy meeting, according to the CME FedWatch tool, up from 12.5% last week. Markets also see a 90% chance the Fed could cut rates two times by the end of the year.

While Fed Chair Powell has signaled that he’s in no rush to loosen monetary policy while the path of inflation remains uncertain, the odds of an imminent rate cut were bolstered by comments from top Fed officials who say a cut in July would be warranted.

Trump continued his pressure campaign against Powell to lower rates this week. In a post on Truth Social, he called the Fed Chair a “very dumb, hardheaded person” and “too late” in a post on Truth Social.

Meanwhile, the president could announce a new Fed Chair as soon as September, sources told The Wall Street Journal. That would be far ahead of the end of Powell’s term next May. The market on Thursday took it as a sign of more dovish rate moves to come, with Treasury yields and the dollar falling.

4. Continued optimism about AI

The AI trade remains alive and well in the US, another factor taking stocks higher.

The Nasdaq 100 notched a fresh record this week, and Nvidia surged to all-time highs, bringing the stock up 64% from its low in March.

“Since the start of the current bull market during October 2022, we recommended overweighting the S&P 500 Information Technology sector and have been especially positive on the S&P 500 Semiconductor industry,” Ed Yardeni, the president of Yardeni Research, wrote in a note on Thursday.

There are still plenty of uncertainties swirling around the outlook for stocks. Investors are unsure how fragile the cease-fire between Israel and Iran will prove to be, and there are still uncertainties around the impact of tariffs.

“While it’s very encouraging to see stocks back near record highs, there are plenty of questions on the next catalyst needed to propel stocks further from here,” Paul Stanley, the chief investment officer of Granite Bay Wealth Management, wrote in a note. “While valuations are high, it’s important to be aware of any pullbacks and deploy new capital opportunistically, rather than chasing short-term gains,” he added.