Wall Street’s ‘Run It Hot’ Trade Powers Stock Records

The coolest trade on Wall Street is known as “run it hot.”

While slowing job growth and tariff-related costs remain primary concerns for investors, the core of the trade lies in betting on an economic resurgence, not a recession. The thinking: Tax cuts and falling interest rates will heat up the economy, fueling a new burst of growth.

That line of reasoning has sent all manner of investments to records , from stocks to bitcoin to gold. Even if the labor market weakens further, many investors believe the near-term outlook remains bright, which they expect to fuel further gains across markets.

“We’ve got an economy that’s still growing,” said Nelson Yu, head of equities at active asset manager Alliance Bernstein. “It’s not falling off a cliff, and I think it actually should be a pretty good environment for risk assets if the central bank can start cutting rates.”

Wall Street’s continued enthusiasm comes as a surprise given investors’ main economic narratives. Many expect tariffs to hurt economic growth by taxing real incomes. The jobs report was generally described as dismal , and Tuesday’s revisions showed the U.S. added 911,000 fewer jobs than initially thought in the year ended in March.

Traders have largely shrugged off such concerns, instead embracing the prospect that lower rates will boost corporate profits. The Federal Reserve has signaled it’s likely to cut short-term rates this month, and Wall Street expects more in the months ahead.

The Dow Jones Industrial Average this past week crossed 46,000 for the first time. The S&P 500 and Nasdaq composite are also hitting records. Higher-risk, high-valuation tech stocks are leading the way, and frothy corners of the market like meme stocks have taken off this summer.

Nvidia , Tesla , Palantir , and meme stock Opendoor are the most-traded stocks by individual investors in the U.S., and all are seeing net buys at Interactive Brokers.

“The core of the run-it-hot trade is the idea that U.S. economic conditions are going to be very strong, supported by easy monetary and fiscal policy,” said Bob Elliott, chief executive at Unlimited Funds, who popularized the term.

Elliott is skeptical. While few are calling for a recession, even a slow-growing economy would likely disappoint investors, who are already expecting burgeoning corporate profits.

David Kelly, chief market strategist at J.P. Morgan Asset Management, sees evidence of a gradually slowing economy that he expects will weigh on cyclical industries, such as manufacturing or retail. Lower benchmark rates aren’t likely to turn that around, he said.

“I think the stock market is just misinterpreting the state of affairs if they think that a rate cut here is going to do any good at all to the overall direction of the economy and profitability,” Kelly said. “When the Fed cuts, it cuts interest income, it convinces people that more cuts are coming so they should wait to borrow, and it convinces people that the Fed is scared of a recession—so they become scared of a recession.”

Investors often buy bonds when they expect a slowdown, anticipating that lower rates will boost the value of existing debt with higher payouts. And Treasurys have rallied since the weak labor-market data began rolling in. The yield on 2-year Treasurys, which typically rises and falls with expectations for rates set by the Fed, recently hit its lowest level in three years.

But longer-dated bonds have also rallied , perplexing some traders. They contend that an economic rebound will bring the question of overheating back to the fore and potentially push rates back up, reflecting more-pressing concerns about inflation.

That view has helped power gains in gold, which investors often buy when they are nervous or expect rising prices. Gold closed at a record $3,649.40 a troy ounce on Friday, extending its 2025 gain to 39%.

“Bulls are making the case that the weak employment data is in the rearview mirror and the economy is clearly going to rebound in the back half of the year,” Elliott said. “I don’t see evidence that that’s happening.”

But the AI boom means some investors expect a strong economy to coexist with a weaker labor market—something that was once hard to imagine in America’s famously consumer-driven economy.

Torsten Slok , chief economist at Apollo Global Management, wrote Thursday that many indicators of consumer strength like air travel and restaurant bookings have remained solid, suggesting that labor market weakness could be tied more to lower immigration than a slowing economy.

Lower borrowing costs could also provide another boost for the boom in artificial-intelligence investment, which has helped power stocks’ recent run to records. Oracle gained $247 billion in market value Wednesday after announcing billions of dollars in contracts with three customers that revealed a bigger-than-expected footprint in the AI race.

“We have this tech investment cycle that’s going on under the surface and providing support, so I think there’s still good reasons to think the economy will be OK,” said Pimco economist Tiffany Wilding . “But we have grown more concerned about the labor market.”

Write to Jack Pitcher at jack.pitcher@wsj.com