Are Interest Rate Cuts Already Factored Into the Market?

* Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA 52-wk: +10.54% YTD: +5.65% Wkly: +1.74%

S&P 500 52-wk: +16.12% YTD: +9.66% Wkly: +0.94%

NASDAQ 52-wk: +22.64% YTD: +11.97% Wkly: +0.81%

SPDR S&P Retail ETF 52-wk: +8.41% YTD: +5.00% Wkly: +3.47%

Weekly Market Highlights

Index performance

• Dow Jones Industrial Average posted a +1.7% weekly gain, outperforming both the S&P 500 (+0.9%) and Nasdaq (+0.8%). Wall Street Journal reports.
• According to Azzad and Sterling reports, the S&P 500 rose ~2.4%, and the Nasdaq jumped ~3.9% amid growing optimism around a pending Fed rate cut. Sterling Capital reports.

Records & Key Milestones

• The S&P 500 notched a new all-time closing high of 6,468.54 on August 14 and intraday high of 6,481.34 on August 15. Wikipedia reports.
• The Nasdaq Composite hit a closing high of 21,713.14 and an intraday high of 21,803.75 on August 13. Wikipedia reports.
• Meanwhile, the Dow hit its first intraday record of 2025, powered by UnitedHealth’s 12% surge after Berkshire disclosed a $1.6B stake. Wall Street Journal reports.

• UnitedHealth surged 12%, sparking Dow leadership in a week otherwise dominated by mega-cap tech. Wall Street Journal reports.
• Amazon (+3.75%), Netflix (+2.25%), Spotify (+3.8%), Blackstone (+1.6%), and Micron (+1.7%) are approaching key technical buy points, signaling potential entries. Investors.com reports.
• Intel rallied ~5–6% after positive comments from the President, while Sea jumped 19% on strong earnings Wall Street Journal

Market Outlook

• Investor sentiment is bullish, betting on the Federal Reserve easing in September amid easing inflation and dovish commentary. Sterling Capital reports.
• Volatility remains a concern; investors are advised to monitor macro data, upcoming Fed guidance, and maintain diversified portfolios with exit strategies in place Investors.com
• Further inflation releases and central bank developments will be key to sustaining momentum.

*Barron's

The S&P 500 (SPX-0.29%) index is turning into the S&P technology index, and that’s something investors need to consider—and worry about.

It may be time for them to look elsewhere to diversify their portfolios, and laggard healthcare and energy stocksmay be good options. 

The S&P 500 continued its summer rally this past week, rising 1.2% and finishing at a new high of 6,468.54. The benchmark has now returned over 10% this year and more than 30% from its April low.

Tech stocks— Nvidia (NVDA-0.86%), Microsoft (MSFT-0.44%), and Palantir Technologies (PLTR-2.13%) —have powered the summer move, with the index’s tech sector now up 16.4% for the year. More recently, tech laggards such as Alphabet (GOOGL+0.47%) and Apple have revived, with Apple up more than 10% since the end of the second quarter to $232.

This past week, tech accounted for a record 34.5% of the index’s total market capitalization of $54 trillion. That’s up from 32% at the end of 2024 and 20% in 2018.

The current figure understates the true tech weighting because S&P Dow Jones Indices, which oversees the benchmark, categorizes Meta Platforms and Alphabet as communication services stocks. Add that pair to Amazon.com (classified as a consumer discretionary stock) and Tesla (an artificial-intelligence, robotics, and autonomous-driving play) and the “tech” sector weighting is about 45%.

This should matter to investors since the S&P 500 is the most popular benchmark for index and exchange-traded funds. There’s probably more than $10 trillion directly linked to the S&P 500 and trillions more from investors who deviate little from the index.

Tech dwarfs every other sector, and tech leaders are comparably sized to entire index sectors. Nvidia, the S&P 500’s top stock at 8% of its value, has a $4.5 trillion market cap, nearly equal to the entire healthcare sector at $4.7 trillion. Once-mighty energy has a $1.5 trillion market cap, 3% of the index.

America’s tech leaders are dominant, with lucrative business models and wide moats. But the recent rally has raised risks, with tech stocks trading at an average of 30 times forward earnings and 10 times sales.

Healthcare, energy, and financials are valued at closer to 15 times earnings. Ten times sales used to be viewed as an outlandish valuation, but Nvidia now trades for 20 times 2025 sales, and Palantir for almost 100 times.

Surging tech capital spending, much of it on AI, is undercutting one of the old arguments for tech investing—namely that strong competitive positions required only modest capital spending. Free cash flow is under pressure. Alphabet is projecting $85 billion of capex this year, up from $52 billion in 2024, and Meta sees about $70 billion in 2025, against $39 billion in 2024. Capex is now nearing 25% of revenue, double that of a decade ago.

“Tech industry capex is looking similar to the oil industry,” says Cole Smead, co-manager of the Smead Value fund. That probably means lower returns on investment.

One reason that many investors avoid energy is that high capex is needed to replace reserves. But all of the negatives in energy appear discounted in stock prices, with the sector—as measured by the Energy Select Sector SPDR ETF—about flat so far this year and many exploration-and-production companies down 10%.

Smead sees this as one of the best buying opportunities in energy in a decade. Conventional energy is needed to power AI, which the stocks don’t reflect. True, U.S. crude oil prices are down some 10% this year to $63 a barrel, but that may be near a bottom.

He favors cheaply valued E&P companies like Diamondback Energy, ConocoPhillips, Occidental Petroleum (a Warren Buffett favorite), and APA.

The big U.S. supermajors, Exxon Mobil and Chevron, are safer plays and trade for about 15 times forward earnings and yield about 4%. Their European counterparts BP and Shell are even cheaper. Probably the most depressed area in energy is services, including industry leader SLB —formerly Schlumberger—which is down almost 15% this year to $33 and trades for about 10 times earnings.

Energy is also a good hedge against inflation and higher interest rates.

Healthcare stocks started to stir this past week, rising 2%, but the sector is still down 3% this year. There’s concern about drug pricing, tariffs, and President Donald Trump’s top health official, Robert F. Kennedy Jr., who isn’t a big fan of the industry and traditional medicine.

But healthcare is as cheap as it has been relative to the market in 30 years, per Goldman Sachs research.

Two industry leaders, Eli Lilly and UnitedHealth Group, have depressed stocks and may have bottomed.

Lilly is dominant in diet drugs with injectables Zepbound and Mounjaro and is seeking to solidify that position with a diet pill known as orforglipron, which uses the same GLP-1 formula as the injectable drugs and could be on the market in the second half of 2026.

An effective pill could greatly expand the market. Yet Lilly shares fell 10% recently on what Wall Street viewed as mildly disappointing data about the weight loss achieved by participants in a key clinical trial for the new pill.

Lilly stock, now trading around $684, is down from a peak of nearly $1,000 last summer.

Lilly is a top choice of UBS analyst Trung Huynh. “Lilly is the clear leader in the space—it has the best drugs on the market,” he said this past week. It’s also a favorite of J.P. Morgan’s Chris Schott, who wrote recently that the stock was attractive valued at 27 and 20 times his 2025 and 2026 earnings estimates, respectively, considering that he sees “high teens” annual earnings-per-share growth into the early 2030s. Lilly insiders bought stock this past week, including CEO Dave Ricks.

UnitedHealth has been the worst stock in the Dow Jones Industrial Average this year, falling nearly 50%, to $271 at Thursday’s close, largely on earnings disappointments keyed to underpricing of health-insurance plans including Medicare Advantage. But after hours on Thursday, the stock was up about 8% after it was revealed that Berkshire Hathaway had purchased 5 million shares in the second quarter.

Bernstein analyst Lance Wilkes has laid out the bull case for health insurance, saying its woes were driven by higher usage of medical services that is starting to “decelerate back to normal.” He sees margins recovering in Medicare Advantage plans. And he’s bullish on UnitedHealth, now trading around 10 times his 2026 earnings estimate, and Elevance Health, formerly Anthem, now at some eight times 2026 profits.

Value investors like Dodge & Cox are accumulating UnitedHealth, while Elevance CEO Gail Boudreax recently bought $2.4 million worth of shares at $287, just below the current price of $295.

Is investor Complacency Starting to Show Up in Markets?

A handful of trade deals have materialized, and the most severe elements of the ‘trade war’ have been dialed down. But we still inhabit a world of economic uncertainty.

The U.S.’s effective tariff rate is substantially higher than it was six months ago, the U.S. and China have yet to reach a trade agreement, and new tariffs and economic policies continue to surface. Businesses are still trying to make sense of the shifting policy landscape, which is a factor that can impede long-term planning and investment.

And yet, stocks keep rallying.

In previous columns, I’ve offered a few explanations for the strong performance off April lows. In the first four months of the year, fears about tariffs were disproportionately high. Then we got the 90-day pause, more extensions, a few deals, and dialed down tariff rates. The entire episode registered to markets as a series of “better-than-expected” outcomes, which almost always drives stocks higher. I’ve written it many times—stocks love to climb the wall of worry.

But the market’s strength in recent weeks looks a bit different.

There is still plenty of uncertainty regarding effective tariff rates and sectors that may be targeted, but investors seem largely unfazed by each new tariff announcement. Some market participants may be accepting that tariff rates will remain relatively high and that there will be no economic price to pay, now or in the future. But it could also be a sign of growing complacency, which if true, could be worrisome.

I’m not saying investors need to anticipate an economic downturn. I’ve recently written about the resilience of the U.S. economy, which could continue for years. I’m more concerned about investors ruling out even the possibility of an economic impact due to tariffs, assuming instead that everything is working, and will continue working, smoothly. From a sentiment perspective, this could lead to fading pessimism and growing optimism, which is another way of saying that the wall of worry may be shrinking. That’s usually a signal to look at the equity market more cautiously.

Perhaps the most “risk-on” segment of the market today is a familiar one: large-cap technology stocks. The rally we’ve seen recently gives the perception that all trade headwinds are gone, and it’s all clear from here. With big tech’s recent gains, the U.S. equity market is now the most concentrated it has been in over 50 years, with the top 10 stocks making up roughly 37% of the total market cap of the S&P 500 index. This concentration has grown much faster than the earnings those companies contribute to the index (28%), leaving one of the widest valuation and weighting gaps since 1970.

This is the type of strength investors should observe with caution. History shows that when concentration and relative valuations hit these kinds of extremes, like we saw in the late 1960s and the dot-com era, it often precedes a long stretch of underperformance for the biggest names, with stronger relative returns for the rest of the market (in this case, “the other 490”). In fact, during the most concentrated third of historical market conditions (top 10 stocks at 23–39% of index weight), the equal-weighted bottom 490 outperformed the top 10 in 88% of rolling five-year periods.

Again, I don’t mean to fire a warning signal. Big technology companies could continue to deliver, and AI’s impact on the economy and profits could be even bigger than many are anticipating. But history tells us the path is never a straight line, and leadership at this scale will be difficult to sustain over the long term.

For investors, I think it’s a reason to check your portfolio’s balance. In environments like this, trimming back some of the biggest winners, taking profits, and reallocating to areas with better value can reduce risk without sacrificing long-term upside.

Mitch Zacks is not ready to declare that optimism is giving way to euphoria in markets today. There are still plenty of skeptics, and I think tariff uncertainty is still meaningful to a healthy segment of investors. But when optimism starts to take hold across the board, especially without a material improvement in underlying economic conditions, history suggests that caution is warranted. Our team is watching these signals closely.

As far as big tech’s outperformance, markets can stay concentrated for a while, and economic data can remain choppy without derailing a bull market. But when leadership narrows, valuations stretch, and the economic picture is cloudy, I’d expect conditions to get a bit choppier. We continue to rebalance portfolios and diversify into attractively valued areas, all while staying disciplined.

DATA: Barron’s print edition page 26 8/18/25 Market Week Paul R. La Monica

Paragraph: one ChatGPT market recap for the week of 8/11/25-8/15/25 As stated above

Paragraph: two Barron’s print edition 8/18/25 page 8 As Tech Rallies. Andrew Barry

Paragraph: three Mitch on the Markets online 8/16/25 Is Investor Complacency Starting to Show Up in Markets? Mitch Zacks

Closing remarks Richie Naso’s opinion

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