Stock Rotation Lifts Small Caps to Three-Year High: Markets Wrap – Yahoo Finance

October 16, 2024

(Bloomberg) — Stock traders continued to rotate the megacap stocks that have been driving the bull market to other parts of Wall Street.

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Cyclical stocks outperformed, with the Russell 2000 index of small and medium-sized companies hitting a three-year high. Most big tech stocks fell, but Nvidia rose 3.1%. The equal-weighted version of the S&P 500, in which companies such as Apple Inc. have the same weight as Dollar Tree Inc., outperformed the U.S. benchmark. This indicator is not heavily influenced by large companies, providing a glimpse into expectations that the bull market will extend further.

“Investors may be looking to move away from large technology companies that are widely owned and may see fewer clear catalysts going forward,” said TradeStation's David Russell. . “With the election approaching and the economy rebalancing, the long-awaited rotation out of mega-cap stocks and into everything else may finally be around the corner.”

Traders also continued to examine a large amount of corporate earnings. Morgan Stanley rose 6.5%, posting a 32% jump in third-quarter profit as traders and bankers, along with other rivals on Wall Street, posted better-than-expected earnings. United Airlines Holdings Inc. rose 12% as profits beat expectations.

Billionaire Stan Druckenmiller said the market is pricing in Donald Trump's victory ahead of next month's presidential election. “You see it in bank stocks, you see it in cryptocurrencies,” he said in an interview on Bloomberg TV.

The S&P 500 rose 0.5% to around 5,840. The Nasdaq 100 is almost unchanged. The Dow Jones Industrial Average rose 0.8%. The Russell 2000 rose 1.6%. Bloomberg's “Magnificent Seven” gauge is little changed.

The yield on the 10-year US Treasury note fell 2 basis points to 4.01%. Bitcoin rose 1.9% to $67,728.77.

Morgan Stanley's Nicholas Lentini and others said, “We recently upgraded small-cap stocks to neutral relative to large-cap stocks due to a 3.5-year slump.'' “This decision was made against the backdrop of the strong September jobs report and the Fed's decision to cut interest rates by 50 basis points at last month's meeting.”

For them to become fully bullish on small-cap stocks, key macro indicators would need to reflect a clear acceleration in growth.

Adam Turnquist of LPL Financial says small-cap stocks have been trading lower in recent months as investors questioned the possibility of a soft-landing scenario and the path of monetary policy.

“The Russell 2000 is bouncing off the lower end of the price channel as the growth outlook has recently improved, supported by better-than-concerned labor market conditions and rising expectations for Fed rate cuts,” he said. ” he pointed out. “Recent strength in the banking industry is further supporting small-cap stocks.”

The S&P 500 index has already set 46 closing price records this year, and the gains could continue into the final months of 2024, according to Goldman Sachs Group Inc.'s trading desk.

Scott Rabner, the bank's managing director of global markets and tactical expert, predicts the U.S. stock benchmark could end the year “well above $6,000.” He calculated data going back to 1928 and found that the S&P 500's historical median return from Oct. 15 to Dec. 31 was 5.17%. In election years, the median return is even higher, just over 7%, implying a year-end level of 6,270.

“The year-end bull market is starting to resonate with clients who are shifting their hedges from the left tail to the right tail, as the stock market decline has subsided and institutional investors are now forced into the market.” Rabner wrote. Note to client on Tuesday. Professional investors are becoming increasingly concerned about performance significantly below benchmarks, he added.

Company highlights:

Boeing is considering raising about $15 billion through stock sales and mandatory convertible bonds, Reuters reported, citing people familiar with the matter.
JB Hunt Transport Services' third-quarter profit exceeded the average analyst estimate. Sales fell less than analysts expected.
ASML Holding NV CEO Christophe Fouquet says the long-awaited semiconductor market recovery will continue “until 2025” after disappointing third-quarter results triggered a decline across the semiconductor industry. He said he expected that.
Qualcomm will likely wait until after the U.S. presidential election in November before deciding whether to move forward with its bid for Intel, the people said.
US Bancorp earned more net interest income than analysts expected as the fixed rate assets in its portfolio benefited from higher borrowing costs.
Novavax shares plunged after U.S. regulators withheld the company's experimental flu-coronavirus vaccine after a study volunteer developed severe neurological problems.
Abbott Laboratories lowered its full-year profit outlook and raised its midpoint slightly as strong demand for diabetes drugs continues to drive growth.
Airbus SE plans to cut up to 2,500 positions in its defense and space division as the European aircraft maker seeks to streamline a business that has consistently racked up fees and struggled with intense competition.
Warburg Pincus is considering a possible acquisition of German IT services firm Nagaro SE, which could further increase momentum for a deal in the country, according to people familiar with the matter.