S&P 500 Nears Record as Investors Bet Big Despite Inflation, Fed Delays & Tariff Risks

Why Investors Are Brushing Off Inflation, Fewer Fed Cuts, and Trump Tariffs

The U.S. stock market is surging despite a host of challenges, with the S&P 500, Nasdaq, and Dow Jones Industrial Average approaching record highs. Rising inflation, a more hawkish Federal Reserve, and the threat of new trade tariffs under former President Donald Trump’s proposed policies have not deterred investors. Instead, optimism surrounding economic resilience, corporate earnings, and AI-driven market enthusiasm is fueling the rally.

Markets Focus on Economic Resilience Over Inflation Concerns

Recent data shows inflation remains sticky, with the producer price index (PPI) rising 0.4% in January, exceeding expectations. Meanwhile, a strong labor market—evidenced by a drop in jobless claims—suggests the Fed may hold off on rate cuts until at least September. Despite this, traders have remained confident, betting that inflation will continue its slow descent.

Wall Street analysts point to underlying softness in inflation metrics, such as lower healthcare costs and declining airfare prices, which could help the Federal Reserve maintain its stance that progress toward its 2% inflation target is ongoing. Investors are now pricing in a potential rate cut by July, though the probability of a September cut remains higher.

Trump’s Tariff Threats Fail to Shake Market Confidence

President Trump’s recent signing of an executive order on reciprocal tariffs initially caused concern, but markets shrugged off the impact after it became clear that the tariffs would not take immediate effect. Investors are betting that any trade measures will be more symbolic than economically disruptive, especially given the complexities of implementing broad-based tariffs without Congressional approval.

Meanwhile, India and the U.S. have set a goal of increasing bilateral trade to $500 billion by 2030, further reinforcing investor optimism that global trade tensions will remain manageable.

Tech Stocks Lead the Market Higher

The ongoing rally has been largely driven by tech and AI-related stocks. The Nasdaq surged 1.5% in the last session, outperforming other major indices. Notable pre-market movers include:

• Roku (+10%) after reporting narrower-than-expected losses and strong revenue guidance.
• Airbnb (+12%) following better-than-expected earnings and revenue.
• Coinbase (+1%) as cryptocurrency trading volume rebounded.
• GameStop (+7%) on speculation about potential Bitcoin-related investments.

However, some stocks are struggling. Applied Materials (-5%) slid after providing weaker-than-expected revenue guidance, and Twilio (-7%) fell on disappointing earnings forecasts.

Headwinds Loom, But Investors Remain Optimistic

Despite the rally, challenges remain. Elevated inflation, delayed rate cuts, and geopolitical uncertainties—particularly around trade policies—could weigh on sentiment. Additionally, retail investor pessimism is rising, with bearish sentiment hitting its highest level since late 2023, according to the AAII survey.

Still, market momentum remains strong, driven by tech enthusiasm, resilient economic data, and expectations that the Fed will eventually ease policy. While volatility is likely in the near term, investors appear focused on long-term growth, keeping markets within striking distance of record highs.

More Information in our Economic Calendar.