Stocks rose on Friday as investors ended a record-setting week on a high note after testimony from the top Federal Reserve official signaled that a rate cut was coming.
The Dow Jones Industrial Average climbed 100 points and hit an all-time high. The S&P 500 traded 0.2% higher and also reached a record. The Nasdaq Composite advanced 0.2%.
The Dow closed above 27,000 for the first time ever on Thursday while the S&P 500 also notched a record close. Investors have been piling into stocks in recent weeks amid expectations that the Fed will cut interest rates later this month.
The major indexes were headed for slight weekly gains. Entering Friday’s session, the Dow and S&P 500 were up 0.6% and 0.4%, respectively. The Nasdaq, meanwhile, was up 0.3%.
Fed Chair Jerome Powell testified in front of congressional leaders this week that “crosscurrents” from weaker overseas economic activity and rising trade tensions are dampening the outlook on the U.S. economy.
“This market remains all about Fed expectations,” said Tom Essaye, founder of The Sevens Report. “The risks are clear: If the Fed, ECB or anyone else disappoints on the enormous dovish expectations they have made for themselves, this market will drop.”
Market expectations for lower rates currently sit at 100%, according to the CME Group’s FedWatch tool. Traders are also pricing in a 20% chance of the Fed cutting by 50 basis points.
Expectations for lower rates persist despite the release of stronger-than-expected economic data. The producer and consumer price indexes — two widely followed measures of inflation — rose more than expected last month, the Labor Department said this week. Last week, the U.S. government reported stronger-than-expected jobs growth for June.
“The Fed is on a one-way street headed to a cut,” said Art Hogan, chief market strategist at chief market strategist at National Securities. “The market is clearly in ‘don’t-fight-the-Fed’ mode.”
“Over the next few weeks, we’ll shift our focus to something more fundamental: earnings,” he said. “It’s never too comfortable to come into earnings season trading at all-time highs.”
The corporate earnings season kicks off next week as major banks like J.P. Morgan Chase, Citigroup, Goldman Sachs and Bank of America scheduled to report. Estimates for the season are downbeat, however.
According to FactSet, analysts expect S&P 500 earnings to have fallen by more than 2% in the second quarter.
—CNBC’s Sam Meredith contributed to this report.