US equities extended their winning streak on Wednesday, with the Dow Jones Industrial Average (^DJI) jumping 450+ points (+1%) and the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) each posting back-to-back record closes.

The rally was fueled by growing conviction in a September Fed rate cut, following softer-than-expected inflation data earlier this week.

• Dow Jones: climbed 1%, reclaiming levels last seen early 2025, now close to its December all-time high.
  
• S&P 500: gained 0.3%.
  
• Nasdaq: added 0.1%, trimming earlier intraday strength.

Inflation Data Sparks Rate Cut Optimism

Wednesday’s gains followed a strong performance on Tuesday, when markets surged after the July Consumer Price Index (CPI) report showed inflation had ticked higher but still came in below economists’ expectations. This data reinforced market sentiment that the Fed now has room to shift toward a more accommodative stance, especially given recent indications of labor market cooling.

Brokers at Fletrade note that traders have now fully priced in a September rate cut, according to the CME FedWatch Tool, with a notable jump in wagers on a larger-than-usual 50-basis-point move. “The market isn’t just expecting a cut, it’s debating how aggressive that cut will be,” says a macro strategist. “The combination of softer inflation and weakening job market signals has dramatically tilted expectations toward policy easing.”

Calls for Aggressive Easing

Treasury Secretary Scott Bessent urged the Fed to cut rates by 150–175 basis points in the coming months, with a potential 50-basis-point reduction in September. While such a sharp pivot is uncertain, the prospect has fueled equity gains. 

Markets thrive on liquidity expectations, and even speculation of faster easing has been enough to drive indices to fresh highs.

Near-Term Economic Watchpoints

This week brings key data: the Producer Price Index (PPI) on Thursday will shed light on wholesale inflation, while retail sales on Friday offer a gauge of consumer spending strength. Upside surprises could dampen rate-cut hopes, but unless inflation meaningfully disappoints, the market’s bullish momentum is expected to persist.

Corporate Highlights: Volatility in Individual Names

Despite the broader market strength, several high-profile stocks saw sharp moves in the opposite direction.

• Circle (CRCL) shares declined after the payments and fintech company announced plans to sell 10 million shares. The move comes just after its first earnings report since a blockbuster public debut, raising concerns about potential shareholder dilution.
• Cava Group (CAVA), the Mediterranean fast-casual restaurant chain, tumbled following its decision to cut its first annual sales growth target. Some consumer sector analysts note that while Cava’s brand momentum remains intact, the revision may suggest management is bracing for softer demand or operational headwinds in the near term.
• CoreWeave (CRWV), a fast-growing AI cloud infrastructure provider, also came under heavy selling pressure. The company beat revenue estimates on strong AI demand but issued operating income guidance that fell short of expectations. Rising debt costs further weighed on sentiment. Analysts emphasize that while AI demand remains robust, investor focus is shifting toward profitability metrics, especially as funding costs climb.

Technical Perspective

From a technical standpoint, the S&P 500 remains in a strong uptrend, having broken through key resistance levels this week. Momentum indicators remain bullish, and market breadth has improved with cyclical sectors participating. 

The Dow reclaiming leadership is notable, as it shows the rally is not just tech-driven but broad-based. The Nasdaq added a slight gain on Wednesday, still marking a record close, though intraday weakness points to consolidation in high-growth names. 

The Dow’s next test is its December 2024 all-time high; breaching that level could trigger further upside as investors chase performance into year-end.

Investor Sentiment and Positioning

Rising Fed rate cut expectations have fueled strong equity ETF inflows in recent sessions, with investors favoring cyclicals like industrials and financials, as well as high-yield credit. Still, risks remain: markets are almost unanimous on a September cut, leaving little margin if the Fed hesitates or if upcoming PPI and retail sales data surprise hot.

Conclusion

Wednesday’s session underscored the market’s growing confidence in imminent Fed rate cuts, propelling the Dow to within reach of a new all-time high and delivering record closes for both the S&P 500 and Nasdaq. While the rally has broadened beyond tech, corporate earnings surprises, both positive and negative, continue to drive sharp moves in individual stocks.

For now, Fletrade brokers see momentum holding, provided upcoming inflation and consumption data align with the cooling trend. As the strategist team summed it up: “The Fed has been handed an opportunity to ease without stoking inflation fears. If they seize it, this rally could have much further to run.”