With endless headlines about tariffs, inflation, politics, and more, it’s easy to get caught up in the fear surrounding the market.
But if you look past the doomsday predictions and actually dig into the data, you’ll find this market is in a much stronger position than the media would have you believe.
Here are five of the biggest tailwinds powering stocks right now—and why they’re poised to keep this rally going.
1. Inflation is dropping—fast
The May Consumer Price Index (CPI) came in much cooler than expected. Year-over-year inflation rose just 2.4%, and the month-over-month core CPI of 0.1 was lower than the 0.2 increase in April.
That’s a huge deal.
Why? Because for months, economists warned that President Trump’s tariffs would cause inflation to spike. This is the third straight month those predictions have been dead wrong. Shelter (the biggest component of the CPI) barely moved. And other areas, including gas and energy, are actually deflating.
Bottom line: Inflation is not rising; in fact, it’s crashing. And that gives the Fed room to ease its monetary policy.
What it means for stocks: Lower inflation makes rate cuts more likely and boosts confidence in the market. It’s a green light for risk-on assets.
2. The Fed still has a bazooka
Despite all the talk of interest rate cuts, the Fed hasn’t pulled the trigger yet in 2025. But now, the central bank is in the perfect spot: Inflation is cooling, and the job market is still strong. (Remember, maintaining price stability and the job market are the Fed’s two primary mandates.)
This “Goldilocks” zone gives the Fed some wiggle room to lower interest rates at its discretion. Simply put, rate cuts are a weapon in the Fed’s arsenal… and when it’s deployed, it’ll send stocks surging.
And here’s the kicker: Powell’s term ends in May 2026, and you can bet a new Fed chair will be far more aggressive about slashing rates. Trump has already called for a full 1% cut to fight rising interest costs on our $34 trillion debt.
What it means for stocks: The Fed has major ammo—and hasn’t even fired it yet. If the economy softens or markets wobble, expect cuts to come fast and hard.
3. The tariff scare is fizzling out
Tariffs have been dominating headlines for months. But now, we’re seeing signs that they’re not as scary as advertised. Despite all the fear, markets are trading near all-time highs.
Plus, we’re likely to see negotiated deals with China, Mexico, and Europe. In fact, Trump has already started hinting at behind-the-scenes progress with China.
And even if tariffs cause a short-term bump in inflation, it’s likely to be a one-time hit, not a long-term threat.
What it means for stocks: Fewer trade risks ahead = less uncertainty = more investor confidence.
4. Earnings are beating and growth is accelerating
The S&P 500 just posted 13% earnings growth year over year—and that’s not a fluke. Consensus estimates are calling for 9% EPS growth through 2026.
Yet, the market is trading at just 21x forward earnings. That’s cheaper than the last five years on a growth-adjusted basis.
What it means for stocks: This isn’t just a momentum rally. It’s backed by real growth. The “expensive market” narrative doesn’t hold up under the numbers.
5. Government spending and deregulation are pouring gas on the fire
Whether you love or hate recent legislation, it’s clear: A tidal wave of government spending is on the way.
Big bank regulations are being rolled back. AI and energy infrastructure are getting massive support. And Trump is signaling lower taxes and lighter regulation across the board.
What it means for stocks: More money flooding into the economy and fewer barriers for growth = fuel for corporate profits and asset prices.
How should investors play it?
Here’s your cheat sheet:
- Own stocks with real earnings growth: Big Tech is still solid, but also look at industrials, energy, and select consumer names that are catching up.
- Stay flexible: Tariffs and politics may cause short-term swings. Use them as buying opportunities for your favorite names.
- Don’t worry about FOMO: Even if a stock is up 40%, if the trend is just getting started (like AI-powered utilities), there’s still upside.
The bottom line
This market has a lot going for it, including falling inflation, government tailwinds, and real earnings growth. Stay focused, stay long, and tune out the noise.
And for more insight into what’s really moving the market—and how to play it—tune into Wall Street Unplugged Premium.
