The S&P 500 rose 0.5% to a record closing high of 6,909.79 on Tuesday, marking its fourth consecutive gain as tech heavyweights offset concerns about delayed rate cuts amid robust economic growth. NVIDIA (NVDA.US), Broadcom (AVGO.US), and Alphabet (GOOGL.US) led the charge, countering weakness in healthcare and consumer staples sectors. However, the rally remained narrow, with the S&P 500 Equal Weight Index dipping 0.3%. The tech-heavy Nasdaq 100 gained 0.5%, while the Dow Jones Industrial Average edged up 0.2%. The CBOE Volatility Index (VIX) hovered below 14.
U.S. GDP grew at an annualized rate of 4.3% in Q3 2025, surpassing Q2's 3.8% expansion and market expectations of 3.3%. Accelerated consumer spending (up 3.5%), stronger exports (+8.8%), and increased government expenditure (+2.2%) drove the upside surprise, though business investment growth slowed sharply to 2.8% from 7.3% in Q2. The unexpectedly strong data reduced market bets on Fed rate cuts in early 2026, with fed funds futures traders slightly increasing wagers on unchanged rates through March.
Northlight Asset Management CIO Chris Zaccarelli called the GDP report "exceptional," noting that "the path of least resistance remains higher" into year-end. 22V Research economist Peter Williams acknowledged the data "modestly weakens the near-term case for cuts." Markets currently price in two 2026 rate cuts, though political pressure for monetary easing may intensify.
As growth expectations firm, cyclical stocks emerge as potential 2026 outperformers. Piper Sandler's Michael Kantrowitz observes early signs of cyclical recovery, favoring financials, industrials, and discretionary sectors. Goldman Sachs' cyclical basket has surged 9.3% in the past month—more than double the S&P 500's 4.2% gain—while its long cyclicals/short defensives strategy delivered 10% returns.
CFRA projects 2.5% 2026 GDP growth fueled by 4.1% retail sales growth and cooling core PCE inflation to 2.4%. US Bank's Tom Hainlin recommends increasing cyclical exposure without selling tech holdings, noting materials and industrials may follow tech's earnings leadership. Citi strategists advocate overweighting financials and underweighting consumer staples, though caution remains about potential Fed policy delays if overheating occurs.
