Published October 18, 2024
The hallmark of a strong market rally is sector rotation. Over the past couple of months, we have seen just such rotation as the rally baton gets passed from one sector to another, then back again. After months of leadership from the Magnificent Seven tech/consumer stocks, this summer saw the rally baton passed to almost all the other market sectors – everything from industrials to typically defensive consumer staples stocks found buyers.
The past couple of weeks have seen some new, and important, faces join the rally parade.
Financials broke out this week on the back of strong earnings reports.
While tech/consumer stocks saw the baton passed from a resting semiconductor group to previously lagging software stocks.
And perhaps, after a number of false starts, the long-lagging small cap group is getting some love. See the possible push above long-held resistance on the right of this chart.
It had been expected that once the Fed began reducing interest rates, small cap stocks would take flight. That now looks like it might be happening. If so, it bodes well for a continuation of the market rally in the weeks ahead.
Market Update
Stocks continued their upward climb Monday as money flowed into Nvidia and other AI-related stocks. Investors have been bidding up Nvidia ahead of its earnings release later this month. However, the AI trade hit a wall Tuesday when semiconductor equipment maker ASML issued a sour outlook on the industry. The company, which is heavily dependent on sales to China, noted that near-term weakness in orders is hurting current profits while the future orders for AI-related equipment have not yet become substantial. The Nasdaq fell -1.2% as a result of the weakness in the semi group. Wednesday saw a +0.5% recovery in the S&P 500 on strong earnings from United Airlines and Morgan Stanley. Earnings reports were again a positive catalyst for individual stocks Thursday with asset manager Blackstone surging on strong results joining insurer Travelers in a solid upside move. The broad market was flat on the day with Medicaid insurer Elevance and railroad CSX dealing bad results. A +10% pop in Netflix joined a positive move in Apple to help the Nasdaq move higher Friday. Intuitive Surgical powered the health equipment group while CVS pharmacy plummeted on a sudden replacement of their CEO. Stocks were fractionally higher Friday. `
A modestly positive week left the S&P 500 higher by +0.86% while the Nasdaq 100 (QQQ) rose +0.18%. Small-cap stocks broke out as our article describes with a +1.98% weekly gain.
Warm wishes and until next week.