S&P 500 Hits 6,500 on Signs Economy in Good Shape

The S&P 500 hit 6,500, and a gauge of volatility hit the lowest since mid-December. Nvidia Corp. pared losses as several analysts raised their price targets despite an uninspiring forecast.

The policy-sensitive two-year yield rose three basis points to 3.64%. Swap contracts linked to future Fed rate decisions continue to fully price in one rate cut in October and a second one by year-end. About 20 basis points of easing are priced in for September.

Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the U.S., increased at a 3.3% annualized pace, the second estimate from the Bureau of Economic Analysis showed Thursday. That compared with an initially reported 3% increase.

“The economy appears to be on all cylinders, and it should be a boost of confidence to markets that most of the tariff-angst was misplaced earlier this year,” said Chris Zaccarelli at Northlight Asset Management. “However, markets have already priced in a September rate cut and it is important that the inflation data remains restrained between now and then.”

As long as the upcoming inflation reports don’t surprise to the upside, the markets should continue their grind higher, he noted.

“Although we are concerned about elevated valuations, it hasn’t been prudent to take preemptive action ahead of a downturn,” Zaccarelli said. “The bull market is alive and well and it will take a meaningful catalyst – such as a recession – to derail it.”

To Jeff Roach at LPL Financial, the upward revisions to second quarter economic growth raises the bar for the third quarter.

“Slowing job growth indicates the economy will not keep up with the above-trend growth from the previous quarter,” Roach said. “Economic growth will likely flatline in the third quarter. Softer growth in the third quarter will add fuel to those calling for rate cuts.”

While the latest GDP report provides a bit more clarity, the focus remains on the delicate balance between elevated inflation and a softening labor market, according to Jim Baird at Plante Moran Financial Advisors.

Baird noted that Fed Chair Jerome Powell threw an additional lifeline of hope to investors looking for a September rate cut at his Jackson Hole speech last week. Whether policymakers will deliver additional easing in the months that follow is less certain.

“Powell’s acknowledgment of the growing risk to the job market appears to open the door to additional rate cuts even though most measures of inflation remain above the central bank’s comfort zone,” Baird said.

U.S. initial jobless claims edged down to 229,000 last week, suggesting employers are holding onto current workers amid economic uncertainty.

Businesses so far have been reluctant to cut staff on a large scale, but they have pulled back on hiring. At the same time, the elevated number of recurring applications indicates that it is taking longer for out-of-work people to find a job.

Meantime, the GDP report also showed the PCE excluding food and energy rose at a 2.5% rate in the second quarter — the same as initially estimated.

Given that we are seeing modest attempts of a stock advance in the run-up to the July inflation data, anything other than an unexpectedly high core PCE means that the short-term risks are to the upside, not the downside for the rest of the week, said Steve Sosnick at Interactive Brokers.

“Yesterday we wrote about how Nvidia earnings had the potential to either trash or turbocharge major stock indices. So far, it’s done neither,” Sosnick says. “In theory, tomorrow’s Core PCE report can do the same, but traders are assuming that it too will have little impact. That’s probably prudent.”

In fact, as for Nvidia analysts are staying bullish on the shares, boosting their price targets even as the world’s most valuable company offered a forecast that underwhelmed investors.

Citing the chip giant’s longer-term prospects, at least 10 firms hiked their 12-month price targets after its results Wednesday, raising the average by 3% to $202.60, according to data compiled by Bloomberg. That implies a gain of about 12% from Wednesday’s close.

While calm prevailed on Wall Street on Thursday, Adam Turnquist at LPL Financial noted financial markets often shift gears in September, entering a period historically associated with seasonal weakness and increased market instability.

Over the last 75 years, the S&P 500 has posted an average drop of 0.7% in September, making it the worst performing month for stocks, Turnquist noted. When September finished in the red, the average loss was 3.8%. This compares to the average gain of 3.2% when September was higher.

“Seasonal data represents the typical climate for stocks but not the weather. And currently, the weather for the S&P 500 is filled with blue skies and record highs. When accounting for momentum and trend, September doesn’t look so bad,” he said.

When the S&P 500 is above its 200-day moving average going into September, he said the average price return for the month jumps to 1.3%, with 60% of occurrences producing positive results.

“We remain confident in the equity outlook and forecast the S&P 500 at 6,800 by June 2026,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “We think broad, diversified exposure to equity markets should enable investors to participate in AI-driven growth, though we see greater opportunities at a single-security and thematic level.”

Her firm recommends investors seek a more balanced exposure across the AI value chain, with a preference now for laggards that offer a more attractive risk-reward tradeoff. "Alongside the tech sector, we favor the health care, utilities, and financials sectors within U.S. equities," she added.

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