S&P 500: Was Friday’s Rally the Start of Sustained Gains or a Short-Lived Bounce?

All 11 major S&P sectors ended higher on Friday, with real estate leading the way, rising 1.8% as Treasury yields retreated. Information technology and financials followed closely, each climbing over 1%. Small-cap stocks, represented by the Russell 2000, added 0.9%, reflecting optimism that lower rates could provide growth opportunities for smaller firms.

Energy, materials, and industrials also posted solid gains, reflecting broad market participation in the rebound. Only 53 stocks in the S&P 500 closed lower, underscoring the strength of Friday’s rally.

What Are Fed Officials Indicating for 2025?

Fed officials struck a more optimistic tone following the inflation data. Chicago Fed President Austan Goolsbee noted that the latest PCE figures suggest inflation remains on track toward the 2% target. This boosted trader confidence that rate cuts could begin as early as March, with another likely by October.

However, the Fed’s midweek decision to forecast just two rate cuts in 2025—down from four previously—sent markets into turmoil earlier in the week. The Dow plunged 1,100 points on Wednesday, its largest single-day drop in months. This hawkish stance tempered some of the bullish sentiment despite Friday’s rally.

Why Did Trading Volume Surge on Friday?

Friday’s session saw heightened trading activity due to the quarterly expiration of derivatives contracts—commonly known as triple witching. This event, which involves the simultaneous expiration of stock options, index options, and futures contracts, drove volume to 21.58 billion shares, significantly above the 20-day average of 14.87 billion.