Stocks Continue Climb Amid Rate Cut Hopes, Strong earnings – Russell 2000 Outperforms
NEW YORK – August 14, 2025 – U.S. stocks extended their gains Wednesday, building on a record-setting session fueled by cooling inflation data and increasing expectations for a Federal Reserve interest rate cut in September. The market’s positive momentum was further supported by a robust second-quarter earnings season.
The advance comes after Tuesday’s market surge triggered by a tamer-than-expected inflation report for July. Traders are currently pricing in a nearly 100% probability of a rate reduction at the Fed’s September meeting, according to data from the
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A notable shift in investor behavior saw funds rotating away from large-cap technology stocks – frequently enough referred to as the “Magnificent seven” – and towards smaller companies. The Russell 2000 led the charge, gaining 2% on Wednesday.
Understanding the Dynamics: Interest Rates, Earnings, and Market Rotation
The recent market activity highlights the interconnectedness of several key economic factors. Lower interest rates generally benefit small-cap stocks by reducing their cost of capital and possibly stimulating consumer spending. This makes them attractive alternatives when the expectation of rate cuts is high.
Strong corporate earnings provide a basic underpinning for stock market gains. As Baird investment strategist Ross Mayfield explained, “This has been a really notable earning season, which showcases kind of a corporate resilience from all the headwinds that we saw across the summer.” He further noted the “really nice kind of breadth” observed in the earnings reports, indicating widespread positive performance.
The shift away from “Magnificent Seven” stocks – a group of dominant tech companies – and towards smaller companies represents a classic market rotation. Investors often reallocate capital to different sectors and market capitalizations based on changing economic conditions and perceived opportunities.
Looking ahead, Thursday’s producer price index report, focusing on wholesale inflation, will provide further insight into the economic landscape.This data will be closely scrutinized in advance of the Fed’s annual
