Wall Street climbs as hopes for rate cuts gain momentum

Wall Street’s recent rally may look like a reaction to good news. But under the surface, it reflects something more complicated: a growing belief that the US Federal Reserve is preparing to shift course. Rate cuts, once speculative, are now being priced as probable—if not inevitable.

On Thursday, the S&P 500 and Nasdaq closed just shy of record highs, buoyed by a combination of regulatory moves, softening economic data, and dovish messaging from several Federal Reserve officials. The Dow Jones Industrial Average jumped over 400 points, while the broader market rally reflected more than just optimism. It pointed to a reassessment of the entire macro-financial stance.

This isn’t simply a return to risk appetite. It’s a rebalancing of institutional expectations, with sovereign funds, banks, and capital allocators adjusting their posture to a world where easing is no longer a possibility, but a policy trajectory.

Financial markets are no longer asking whether the Fed will cut rates this year. The debate now centers on when. According to CME’s FedWatch tool, the probability of a 25-basis-point cut by September is above 75%. There’s even a 21% chance priced in for the July meeting.

This repricing has been fueled by recent speeches from Fed officials. While still couched in conditional language, the statements from San Francisco Fed President Mary Daly and Boston Fed’s Susan Collins reflect a subtle but notable pivot. Daly openly stated that tariffs may not be as inflationary as feared—removing one of the Fed’s main justifications for holding rates. Collins, meanwhile, acknowledged the case for cuts later this year.

These are not radical departures from the Fed’s official line. But they are cumulative signals, reinforcing the perception that the central bank is preparing to act, not just observe.

The macroeconomic data is no longer unambiguously strong. First-quarter GDP was revised downward, largely due to weakening consumer spending. Continuing jobless claims have risen to multi-year highs. These would normally be cause for concern. But in this environment, weakness in key indicators does not lead to panic. It strengthens the case for a more accommodative Fed.

At the same time, other data points—such as pending home sales and durable goods orders—surprised to the upside. This duality creates a policy environment in which easing can be justified without triggering inflation fears. For capital allocators, this is a rare moment of asymmetry: easing is likely, while inflation remains manageable.

Thursday’s rally was also supported by an unexpected development: the Fed’s proposal to relax its leverage rules for large banks. By easing capital requirements against low-risk assets, the Fed has signaled a willingness to recalibrate the post-crisis regulatory framework in favor of credit creation.

The S&P 500 banks index surged 1.6% on the news. But this move goes beyond bank earnings. It implies a broader deregulatory stance—one that could shift institutional capital allocation and risk appetite across the board. For global investors, it’s a cue that the US policy mix is moving toward looser credit and lower rates. In a high-debt, low-growth world, that’s a powerful combination.

Thursday’s gains were not sector-specific. Communication services led the way, but the advance was widespread. On the NYSE, advancing stocks outnumbered decliners by nearly 5 to 1. The Nasdaq saw a similar pattern, with 3,128 gainers against just 1,359 decliners.

Copper prices reached a three-month high, lifting mining stocks like Freeport-McMoRan and Southern Copper by nearly 7% each. The message from commodities is consistent with equities: risk is being repriced, not avoided. Even with Micron’s better-than-expected forecast failing to boost its share price—down 1%—the broader tech rally held. That divergence reflects a shift from earnings-led trading to macro-positioned flows.

Institutional capital is not waiting for a formal Fed cut. It is reallocating in anticipation. That’s evident in both equity volumes and fixed income sentiment. Bond markets have flattened their yield expectations, while equities are rallying on breadth—not just on megacap strength.

This mirrors previous inflection points in monetary policy. In late 2019, markets began easing into a lower-rate environment before formal Fed action occurred. Sovereign wealth funds, pension allocators, and cross-border insurers began pivoting well before consumer sentiment or CPI data reflected the trend. Today’s rally has that same structural shape: liquidity moving to risk assets, not in pursuit of growth, but in defense against yield stagnation.

The rally is not irrational. It’s a reflection of capital reading the policy signals ahead of the public narrative. The Fed has not promised cuts. But the combination of soft data, dovish rhetoric, and regulatory adjustment makes the path to easing clearer than at any point this year.

This shift may appear gradual, even reversible. But in institutional terms, it marks a turning point. Forward-looking allocators are not waiting for confirmation—they are repositioning for a policy regime that, while still data-dependent, is leaning unmistakably toward accommodation. This posture may not drive euphoria. But it drives flow. And in today’s markets, that’s enough.