It was a mixed week on Wall Street, with large-cap indexes largely rangebound while the rally broadened to small-cap stocks. The Russell 2000 index not only hit fresh record highs but also posted its longest streak of consecutive outperformance versus the S&P 500 since 2008.
Small-Cap Strength Meets Economic Reacceleration
The foundation of this outperformance was better-than-expected macroeconomic data.
The U.S. economy is now projected to grow at a stunning 5.3% annualized rate in the final quarter of 2025, according to the Atlanta Fed’s GDPNow model. Initial jobless claims came in at 198,000 last week — below expectations and the second-lowest level in two years — pushing back fears of a cooling labor market.
Analysts see the surprising reacceleration of the U.S. economy as fresh fuel for small- and mid-cap earnings, prompting upward revisions to profit estimates.
Earnings season got off to a strong start for some of Wall Street’s biggest banks, with Goldman Sachs and Morgan Stanley standing out after delivering trading revenues well above expectations.
Policy Shocks: Interest Rate Caps and the Powell Probe
However, the financial sector reacted negatively to President Donald Trump‘s plan to cap credit-card interest rates at 10%. Major payment providers such as Visa Inc. (NYSE:V) and Mastercard Co. (NYSE:MA) suffered their worst week since the April 2025 tariff shock, with shares falling more than 5%.
On the political front, the most significant development of the week was undoubtedly the launch of a criminal investigation by the Department of Justice into Federal Reserve Chair Jerome Powell.
The allegations — related to testimony before Congress on spending and renovations of Fed buildings—were rejected by Powell as a direct attack on the central bank’s independence, raising deep concerns across financial markets and among international policymakers.
The Tariff Defense and Detroit’s Manufacturing Boom
Trump also addressed the Detroit Economic Club on Tuesday, defending tariffs as a tool that he said has revitalized Michigan’s manufacturing economy, particularly in the automotive sector.
Ford Motor Company Co. (NYSE:F), he said, had returned to round-the-clock production at its Michigan complex and announced billions of dollars in new investment across Midwestern plants. He also highlighted General Motors Co.‘s (NYSE:GM) plans to shift production of the Chevrolet Blazer and Equinox from Mexico back to the U.S.
Ahead of a Supreme Court ruling on the legality of the tariffs, Trump said the case is being driven by what he described as “foreign-centric” and “China-centric” interests, adding that he could pursue alternative paths if necessary.
Image created using artificial intelligence via Midjourney.
Recent Comments