US stocks rose 0.6% last week after the Federal Reserve cut interest rates by a quarter point, Trump’s China negotiations, and strong results from most Magnificent Seven stocks. This positive momentum may lead to a sharp increase in stock prices by the year-end.

Although major tech companies reported strong results, Meta suffered a 12.2% decline due to a $15.93 billion tax charge linked to Trump’s legislation. Concerns about AI investments also impacted Meta’s stock performance.

Large-cap US stocks outperformed mid and small-cap stocks, with seven of the 11 sectors declining. Technology stocks rose by 2.6%, while consumer defensives fell by 3.9%, highlighting the market’s sensitivity to the success of a few key companies.

Amazon and Tesla drove the consumer cyclical sector up 2.2%, with their valuations differing significantly. Amazon is expected to provide reasonable long-term returns, while Tesla is priced for lower returns.

The US dollar rose 0.9% due to reduced expectations of a December interest rate cut. This led to a decrease in the probability of a cut, causing Treasury bond yields to rise, with the 10-year reaching 4.1% by the end of the week.

There is ongoing speculation about the Fed’s neutral interest rate, with economists debating its impact on the economy. Investors should approach this speculation carefully, ascribing too much power to interest rates may lead to misconceptions about their influence on asset prices.

Emerging markets rose 0.9% in dollar terms, with Korea and Taiwan showing strong performances. Both countries are dominated by semiconductor manufacturers, highlighting the concentrated returns within the AI/technology sector.

Read more at Morningstar: Markets Brief: Mag 7 Stocks in Focus During Earnings Season