Wall Street celebrated its strongest week in four months as the S&P 500 closed at an all-time high on Friday, driven by expectations that a cooling labor market will push the Federal Reserve toward cutting interest rates.
The benchmark index advanced 3.6% over the five-day period, its best weekly performance since April, while the Nasdaq Composite gained nearly 5% and the Dow Jones Industrial Average added about 2.1%. Friday alone saw the S&P 500 rise 0.6%, pushing it past the 7,700 level for the second time this week.
The rally was fueled by Friday’s July employment report, which showed the U.S. economy unexpectedly lost 23,000 jobs. The unexpected contraction sent bond yields lower as traders sharply increased their bets that the Fed will pause or reverse its rate-hike cycle. Markets now price in a high probability of at least one rate cut by year end.
Technology and AI-related stocks led the charge throughout the week. Elon Musk’s SpaceX surged 10.6% on Thursday after the first share lockup expired following its record public offering. Chipmakers and software companies also outperformed as investors rotated into growth names benefiting from lower rate expectations.
Energy stocks, however, were more mixed as oil prices fluctuated on conflicting signals from the Middle East. Progress toward a deal to reopen the Strait of Hormuz drove crude lower early in the week, but optimism faded Thursday after reports suggested the proposed arrangement could restrict passage for U.S. and Israeli vessels.
European markets also rallied, with Germany’s DAX gaining 2.7% and France’s CAC 40 advancing 2.4%. High-yield bonds outperformed Treasuries in a risk-on environment supported by lower oil prices and diplomatic optimism.
Analysts noted that the market’s rebound was broad-based, with all 11 S&P 500 sectors posting weekly gains. The advance marked a sharp reversal from the previous week’s declines and put major indexes back on track to extend their 2026 rally.
Investors now turn their attention to next week’s inflation data, with the July CPI report due Wednesday. A softer inflation reading could further solidify expectations for monetary easing and provide additional tailwinds for equities.
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