The S&P 500 rose 15% in Q2, its best in six years. The rally is narrow and valuations are stretched. The June jobs report and Q2 earnings will test whether the gains hold.
The S&P 500 rose 15% in the second quarter, its best three-month stretch in six years. The NASDAQ added 21% over the same period. The Russell 2000 small-cap index posted its strongest first half in 35 years. The Dow Jones Industrial Average crossed 52,000.
The rally follows the signing of the One Big, Beautiful Bill a year ago, which cut corporate and individual tax rates. Larry Kudlow, the FOX Business host and former White House economic adviser, described business conditions as "booming and profitable" in a recent column. Employment is rising. Oil and gas prices are falling. The dollar is firm.
The gains have been concentrated. The NASDAQ's 21% advance is driven by a handful of mega-cap tech names. The equal-weight S&P 500 has lagged the cap-weighted version by several percentage points, according to index data. That divergence is a risk if earnings disappoint in the tech-heavy names. Sector performance has been uneven. Technology and consumer discretionary stocks have led the rally. Energy and financials have trailed.
Small caps have caught up after years of underperformance relative to large caps. The Russell 2000's first-half surge reflects that catch-up trade. The Fed holding rates above 5% keeps the cost of capital elevated for smaller companies, a headwind that could slow the index's momentum.
Valuations have expanded. The S&P 500 trades at 22 times forward earnings. The multiple has historically been followed by below-average returns over the next 12 months.
Fed Chair Kevin Warsh expressed optimism at the ECB Forum, signaling patience on rates, according to FOX Business. FOX Business host Charles Payne said the market interpreted the comments as supportive for equities. Tax cuts and falling energy prices have created a favorable backdrop. A patient Fed has added support. The tax cuts have also boosted corporate cash flows, fueling a wave of share buybacks that have supported stock prices.
The Dow's move above 52,000 is a psychological milestone. The index's composition of 30 large-cap stocks makes it less representative of the broader market. The employment rise has supported consumer spending, a key driver of corporate profits.
The July 4th holiday marks 250 years since the Declaration of Independence. Markets will be closed Thursday. Trading volumes typically thin out ahead of the break. The rally's next test comes with the June jobs report and the start of second-quarter earnings season later this month.
Kudlow framed the market strength as a vindication of free-enterprise policies. He quoted Ronald Reagan and the Declaration of Independence, linking economic performance to liberty. For a broader look at market trends, see our stock market analysis.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.