Markets rally as ceasefire hopes strengthen

Summary

Last week

The S&P 500 rose 0.92% and closed at new highs, extending its winning streak to five weeks. AI continues to drive gains, driven by strong earnings and sustained capital investment. Outside of AI, the picture is less uniform.

Pressure is building beneath the surface. Brent crude held near $108 per barrel, reflecting persistent geopolitical risk and keeping inflation concerns in focus. Rates followed a similar pattern. The 10-year Treasury yield pushed higher through midweek before settling at 4.39%, ending slightly above where it began.

Against this backdrop, the Federal Reserve reinforced a clear message: policy is not easing anytime soon.

The Fed held rates steady but signaled little urgency to cut. Inflation remains above target, with PCE near 3.5% and energy contributing to ongoing pressure. More notably, divisions within the committee are becoming more visible, with several officials pushing back on market expectations for near-term easing.

Chair Powell also indicated he will remain on the Board beyond his term, reinforcing continuity at a time of increased political scrutiny.

The result is an economy that continues to grow, but unevenly. Activity, as reflected in recent GDP data, remains near a 2% pace, increasingly driven by investment rather than consumption. Markets are strong, but the consumer is starting to soften. That divergence is becoming harder to ignore.

This week

The focus now shifts to the labor market, where the next signal on policy direction will likely emerge.

Friday’s employment report is central. Payroll growth is expected to slow meaningfully to around 63,000, down from 178,000. A result in line with expectations would confirm that labor conditions are cooling. A weaker print would strengthen the case for eventual easing. A stronger one would reinforce the Fed’s higher-for-longer stance.

The rest of the week builds toward that moment.

Tuesday’s data will provide additional context. The trade deficit is expected to widen to approximately $60.4 billion, while new home sales are projected to rise modestly, suggesting some stabilization in housing.

On Thursday, initial jobless claims are expected to move higher to around 205,000. While still low by historical standards, claims remain one of the most immediate indicators of labor market direction.

Earnings will test a different question: how broad this rally really is.

Results from AMD, Palantir, PayPal, and major cloud companies will offer a read on AI demand, enterprise spending, and consumer health. The key will not just be results, but guidance, particularly around how durable this wave of AI-driven investment proves to be.

Meanwhile, energy prices and geopolitical risk remain unresolved. Together, they continue to anchor inflation expectations, leaving markets caught between resilient near-term data and a more uncertain path forward.