U.S. stocks climbed to new all-time highs Friday as investors reacted to a trifecta of favorable developments: inflation continuing to cool despite tariffs, the end of the Iran-Israel war, and growing signs that President Trump’s tax legislation is advancing in Congress.
The S&P 500 rose 0.52 percent to finish at a record 6,173.07. The Nasdaq Composite and Dow Jones Industrial Average also closed at historic highs, powered by gains in technology, energy, and industrial shares. Markets briefly dipped midday after Trump announced an end to trade talks with Canada but recovered quickly to finish the day firmly in positive territory.
The rally comes as new data showed inflation remains moderate even after the imposition of widespread tariffs. The core personal consumption expenditures index, the Federal Reserve’s preferred measure of underlying inflation, rose 0.2 percent in May. On a 12-month basis, core prices were up 2.7 percent, while the headline rate ticked up to 2.3 percent.
Consumer inflation expectations also declined notably. A widely followed sentiment survey showed the expected one-year inflation rate falling to 5 percent, down from 6.6 percent a month earlier.
The figures have strengthened market expectations that the Fed could resume cutting interest rates as soon as this fall. According to CME Group data, traders are now pricing in increasing odds of a September cut, with further easing expected by year-end. President Trump has repeatedly called for lower interest rates, arguing that tariffs would not push inflation higher—a view bolstered by the latest data.
Adding to the bullish mood this week was the announcement that the war between Israel and Iran is officially over, following a U.S.-brokered peace agreement. The resolution of hostilities removes a major source of geopolitical risk that had weighed on energy markets and investor sentiment earlier this year. Oil prices fell sharply on the news, with Brent crude slipping below $70 a barrel.
Meanwhile, developments in Washington suggested that the Trump administration’s fiscal agenda is regaining momentum. Treasury officials indicated Friday that the proposed “revenge tax”—a retaliatory provision aimed at countries implementing the OECD’s global minimum tax—will be removed from the bill. The change follows G-7 concessions allowing U.S. firms to be exempted from the international pact, clearing a major hurdle to legislative passage.
The broader tax package includes expanded deductions for capital investment and a simplified corporate tax code—provisions that have drawn support from business groups and many Republican lawmakers.
Markets showed little lasting concern over Trump’s announcement that trade negotiations with Canada had ended. While the news briefly unsettled investors, major indexes quickly rebounded, suggesting that traders are discounting the economic impact of the breakdown or anticipating a resumption of talks under different terms.
With inflation cooling, war concluded, and a tax bill advancing, investors appear increasingly optimistic about the second half of the year. Despite lingering concerns over equity valuations and earnings growth, the prevailing sentiment Friday was that key risks are receding—and that monetary and fiscal policy may soon turn more supportive.