Despite an unexpected surge in PPI, U.S. stocks still rose over the past week.

For the week, the S&P 500 and Nasdaq gained 0.94% and 0.81%, respectively, hitting new all-time highs. The Dow Jones rose 1.74%, approaching the 45,000-point mark.

With a Fed rate cut in September almost certain, optimism has taken hold. Andrew Slimmon, head of applied equity advisors at Morgan Stanley Wealth Management, noted that stocks benefiting from rate cuts—such as homebuilders, cyclicals, industrials, and materials companies—have been big winners recently.

David Chao, global market strategist for Invesco Asia Pacific, told reporters that while Fed Chair Powell believes a wait-and-see approach is reasonable, relatively mild inflation and weak employment reports provide grounds for monetary easing. The base case remains that the Fed will implement two 25-basis-point rate cuts by year-end.

Amid economic uncertainty, Wall Street remains deeply divided on the future of U.S. stocks.

Optimism currently dominates the market. Citi raised its year-end target for the S&P 500 from 6,300 to 6,600, while UBS lifted its target from 5,500 to 6,100. Earlier, HSBC, Goldman Sachs, and Bank of America also raised their S&P 500 targets.

Ulrike Hoffmann-Burchardi, head of global equities at UBS Global Wealth Management, stated that the base scenario now is for U.S. effective tariff rates to stabilize around 15%. While this would weigh on growth and push inflation higher, it wouldn’t be enough to derail the U.S. economy or stock market rally.

Bank of America’s August fund manager survey showed that as the U.S. earnings season delivered strong results and confidence in the global economy improved, investors returned to equities, making "long U.S. big tech" the most crowded trade again. About 45% of managers said the current top trade is "long the Magnificent Seven"—Microsoft, Nvidia, Meta, Amazon, Tesla, Google, and Apple.

Since the start of the year, the S&P 500 has risen over 10%, with a handful of large tech stocks contributing most of the gains.

Howard Marks, co-founder of Oaktree Capital Management, argued that while the Magnificent Seven’s average P/E of 33x is above the market average, their exceptional products, high market share, strong margins, and wide moats justify the valuation. The remaining 493 S&P 500 companies trade at an average P/E of 22x, far above the historical average of 15x. "It’s these companies that have pushed the index’s valuation to worrisome highs," he said.

On the bearish side, Stifel warned that Wall Street’s record rally is about to face a reality check. Quarterly GDP and recent consumer spending data suggest the U.S. economy began cooling in the first half of 2025, with a sharper slowdown and "mild stagflation" likely in coming months. The S&P 500 could fall as much as 14% to 5,500 by year-end. Investors may find opportunities by shifting to more defensive, value-oriented stocks.

Looking ahead, U.S. stocks still face multiple risks. Lisa Shalett, CIO of Morgan Stanley Wealth Management, cautioned, "We’re seeing more mixed signals in the data, and many investors may be overlooking risks from a cooling labor market, mixed corporate earnings, and rising price pressures."