By Linh Tran, Market Analyst at XS.com
The S&P 500 rose 0.26% in yesterday’s session – a modest gain in terms of points, but a meaningful one when viewed against the backdrop of a series of U.S. economic data releases that all came in above expectations. Initial jobless claims fell to 198,000, well below the forecast of 215,000, indicating that the labor market remains very resilient. At the same time, key regional manufacturing indicators such as the Empire State Manufacturing Index (7.7) and the Philly Fed Manufacturing Index (12.6) both rebounded sharply from negative territory into positive readings, highlighting a clear improvement in U.S. manufacturing activity.
These data reinforce the view that the U.S. economy has not slipped into recession and is, instead, operating in a relatively stable manner. However, it is worth noting that the S&P 500’s advance was not driven by expectations of an imminent policy pivot by the Federal Reserve, but rather by confidence that corporate earnings still have a solid foundation. The index’s ability to remain in positive territory despite import prices rising 0.4% m/m, above forecasts and signaling a return of cost-push inflation pressures, suggests that the market has, to some extent, accepted a “higher for longer” interest-rate scenario, as long as growth and corporate cash flows remain intact.
Notably, the S&P 500, the Dow Jones Industrial Average, and the Nasdaq all closed higher, with gains of 0.26%, 0.60%, and 0.25%, respectively. This pattern indicates that the session was neither a broad-based risk-on surge nor a speculative chase for growth. Instead, it reflects a more balanced market stance and an acceptance of the current monetary policy environment. In periods of strong risk appetite, the Nasdaq typically outperforms the S&P 500; the fact that the two indices moved largely in tandem in the latest session implies that capital is being allocated more cautiously, rather than being heavily concentrated in high-growth stocks.
From my perspective, this represents a relatively healthy signal. The market’s ability to stay positive amid strong economic data and renewed cost-inflation pressures shows that confidence in corporate earnings prospects remains intact. At the same time, the modest scale of the gains underscores the reality that valuations are being constrained by elevated interest rates, limiting the market’s upside potential.
Looking ahead, the S&P 500 appears to be sustaining its upward trend in a cautious manner. The index is no longer supported by valuation expansion as it was in earlier phases, given that bond yields remain high and the Fed lacks a clear incentive to pivot policy. This means that any further upside will likely depend more on genuine corporate earnings growth rather than on monetary policy expectations alone.
In the near term, the most plausible scenario remains sideways movement with a cautious upward bias, supported by the absence of recession signals in the U.S. economy, but capped by the restrictive impact of a high-interest-rate environment on market optimism. Over the medium term, as long as key pillars such as the labor market and manufacturing activity remain stable, the S&P 500 is unlikely to enter a downtrend, though it also lacks the conditions for a rapid rally without additional catalysts from inflation dynamics or the Federal Reserve.