Will the Stock Market Maintain Its Upsurge?
The U.S. stock market has shown a mixed performance in the second half of 2025, with the S&P 500 and the Dow Jones Industrial Average (DJIA) reaching new record highs in Q3 2025. The S&P 500 closed at 6,204.95 on June 30, 2025, and was 3.9% higher at 6,449.02 on August 18, 2025. The DJIA closed Q2 2025 at 44,094.77 and was 1.99% higher on August 18, 2025, trading at 44,971.66.
The market's cautious outlook is attributed to a blend of positive and negative factors. On one hand, robust technology earnings have been beating forecasts, with growth stocks driving recent gains. On the other hand, the trend of higher interest rates, geopolitical risks, and tariff uncertainties have kept the market volatile.
The Federal Reserve's decision to keep the Fed Funds Rate unchanged at 4.375% in 2025 has contributed to a slower equity growth. The rate, which influences borrowing costs, has kept strong upward movement limited and supported a cautious tone for the market.
The market's concentration is another concern, with growth stocks, especially tech giants, accounting for a significant portion of the market's gains. While this rally is favourable, it is highly concentrated in a handful of stocks rather than broad-based.
The VIX index, a measure of market volatility, reflects the S&P 500's bullish price action. The index, which tends to rise when stocks fall and vice versa, is currently under 16, which is below its 2025 range of 14.30 to 60.13. The index's current level suggests a relatively calm market, but the potential for volatility remains.
The trend in the stock market remains higher, with the S&P 500 making higher lows and higher highs for nearly half a century. This trend suggests that new record highs are likely. However, each downside correction over the past four and a half decades has been a compelling buying opportunity. With the higher the stock prices rise, the greater the odds of a correction. A potential new buying opportunity could be just around the corner.
Investors are advised to be cautious and watch for evolving trade negotiations and inflation trends that could tip the market direction. Some improvement may come from deregulation and government spending policies boosting corporate earnings and business investment, along with possible upside surprises in U.S. equities if tariff risks subside and economies stabilize.
Sources:
- CNBC
- Bloomberg
- Yahoo Finance
- MarketWatch
- The Wall Street Journal
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