Stocks rally on Fed interest rate cut hopes as ‘jobless expansion’ takes hold

The S&P 500 closed at 6,615 on Monday, yet another record high, as investors bet the Federal Reserve is about to start cutting interest rates . The rally has Wall Street racing to catch up, with analysts hiking their year-end forecasts. Some stock market bulls now see the index breaking 7,000 before December.

That would mean a roughly 6% rise over the next 76 days, and on the face of it, that’s not exactly a feverish climb. But considering the market is already sitting at record highs, a 6% move higher is a bullish call.

It’s essentially analysts saying: “Even after this monster run, there’s still gas left in the tank.”

Just a few months ago, Wall Street appeared anxious about inflation, worrying that the Fed might need to keep monetary policy tight well into 2026. Now, a series of worrying labor-market reports — including the August report showing just 22,000 new jobs and a benchmark revision subtracting almost one million jobs from previous estimates — have convinced investors that not just one but a series of cuts are coming. Prediction markets see a September move as a lock, with additional reductions likely in October and December .

The paradox is that bad news for workers has become good news for markets.

“A cooling labor market is a tailwind to corporate profits, all else equal,” Goldman Sachs strategist David Kostin wrote, noting that slower wage growth helps margins. JPMorgan has labeled the dynamic a “jobless expansion,” pointing out that equities have sometimes thrived in past cycles of rising unemployment , from the 1950s to the early 1990s.

Separate, but related, is how tech stocks are driving the rally, with Nvidia and Tesla leading Monday’s gains. The tech rally is not a new phenomenon — it’s been true for years, powered in part by faith that AI will prove a booming business for the likes of Microsoft and beyond. A possible Fed cut makes tech companies’ future earnings look like more of a bargain, while Wall Street may be predicting those earnings become even fatter because of a “workerless expansion” that means lower labor costs. An Anthropic report out Monday underlined “job disruption” as a central risk of increasing AI adoption.

That’s exactly the kind of dynamic Wall Street is betting on .

For now, exuberance rules. Wall Street is riding high on tech and pricing easier money ahead. Stocks keep climbing, analysts keep raising targets, and investors are cheering each weak jobs print as another step toward cheaper capital. Whether that logic holds once unemployment rises further remains the open question.

But the elephant in the room is consumers.

U.S. households and their spending make up most of the U.S. economy , and if rising unemployment starts to dent spending, the bullish case gets shakier. Tariffs and higher prices are already weighing on sentiment, with the University of Michigan survey showing inflation expectations creeping up.

A “jobless expansion” can float profits for a while. But without consumers willing to spend, it’s hard to see how long the rally can last.