Why Wall Street Keeps Climbing: The Fed and Earnings Are the Secret Weapons

The S&P 500's 0.7% weekly rise in early June 2025 isn't a fluke—it's a testament to two unstoppable forces: central bank accommodation and corporate earnings resilience. Even as inflation sticks stubbornly above 3%, the Fed's dovish pivot and companies' ability to hike prices and cut costs have turned skeptics into believers. Let's dissect how this duo is fueling the market's defiance—and where to position your money now.

The Fed's Playbook: Lower Rates, Higher Stocks

The Federal Reserve's June projections reveal a critical pivot: the federal funds rate is expected to drop from 3.9% in 2025 to 3% by 2027, with risks skewed toward easing sooner. This is a game-changer for equities. Lower rates reduce borrowing costs for companies, boost valuations via discounted cash flows, and keep cash flowing into risk assets.

The Fed's “lower for longer” stance is no accident. They're balancing persistent core inflation (2.7% in May) against softening GDP growth (1.4% projected for 2025). But here's the kicker: they're prioritizing employment stability over inflation, even if it means tolerating higher prices. That's music to investors' ears.

Earnings Are the Real MVP

While the Fed sets the backdrop, corporate earnings are the engine. Tech giants like NVIDIA (NVDA) and Micron (MU) are leading the charge with AI-driven demand, while consumer stalwarts like Nike (NKE) are proving their mettle.

• Tech's Pricing Power: NVIDIA's stock is up 28% YTD as data centers and gaming demand explode. Micron, once a cyclical casualty, is leveraging AI memory needs to stabilize margins.
• Operational Agility: Nike slashed $1 billion in tariff costs by reshoring production to Mexico and Indonesia. Meanwhile, price hikes (up 6% in Q1) offset softer consumer spending.

The S&P 500's 15% YTD gain is no accident—it's built on sectors that can pass costs to customers and trim fat when needed.

The S&P's 0.7% Weekly Rise: A Case Study in Selectivity

The S&P's recent climb isn't about broad economic health—it's about sector rotation. The index's rise was fueled by tech (+3% week), industrials (+2.5%), and energy (+1.5%), while consumer discretionary lagged (-0.5%). This mirrors a new reality: investors are rewarding companies with balance sheet flexibility and pricing power, not just GDP-linked sectors.

Where to Deploy Capital Now

1. Tech & Industrials: Buy AI leaders like NVDA and MU, but also industrial innovators like General Electric (GE), which is pivoting to renewable energy and software.
2. Defensive Plays with Cash: Utilities like NextEra Energy (NEE) and healthcare giants like Johnson & Johnson (JNJ) offer stability. Both have AA credit ratings and dividends >2%.
3. Avoid Consumer Discretionary: Retailers like Walmart (WMT) are battling inflation-hit shoppers. Wait until the Fed cuts rates before dipping toes into this sector.

The Risks? Inflation and the July Tariff Cliff

The Fed's patience is predicated on inflation cooling. If core PCE stays above 2.5% through 2026, the rate-cut timeline could stall. Meanwhile, the July expiration of U.S.-China tariff pauses looms. If tariffs restart, companies without supply chain flexibility (looking at you, Apple) could stumble.

Bottom Line: This Rally Isn't Over—But Pick Your Fights

The Fed's dovish bias and earnings resilience mean the bull market isn't dead—it's just sector-specific. Load up on tech, industrials, and defensive stocks with pricing power. Avoid consumer discretionary until the tariff dust settles. And remember: the Fed's still printing equity-friendly money.

Action Alert: Buy the dip in NVDA, NKE, and NEE. Sell any lagging consumer names. This market isn't for the faint of heart—but it's rewarding the bold.

Stay aggressive, but stay smart.