The stock market received a much-needed boost at the end of a tumultuous week, as key economic data fueled speculation that the Federal Reserve is gearing up for an interest-rate cut in September. This news sent ripples through the market, with every major group in the S&P 500 experiencing gains on Friday.
Investors are betting on a Fed easing cycle that will continue to support Corporate America, leading to a broadening of the bull market beyond the usual suspects in the tech sector. The rotation into economically sensitive shares has been driven by Fed-friendly data, with financial, industrial, and staples shares outperforming tech in July.
Small caps have seen a significant rally, with a 10% increase as investors anticipate better performance amid lower interest rates. This shift in the market dynamic has caught the attention of experts like George Maris at Principal Asset Management, who believes that the rotation into smaller cap names will have lasting power.
Friday’s economic data further reinforced the optimism in the market, with the Fed’s preferred measure of underlying US inflation rising at a tame pace and consumer spending remaining healthy. The prospect of interest-rate cuts has fueled a surge into smaller names, with the Russell 2000 of small caps climbing 1.7%.
The market also saw notable performances from companies like 3M Co., which soared the most since 1980 on a bullish outlook, and homebuilders hitting a record high. However, an initial public offering for Bill Ackman’s US closed-end fund was postponed.
Looking ahead, traders will be closely watching next week’s earnings reports from big tech companies like Apple Inc., Microsoft Corp., Amazon.com Inc., and Meta Platforms Inc. The stakes are high for these companies, especially after a disappointing start to the megacap earnings season.
Overall, the market seems to be shifting towards a more balanced approach, with a focus on smaller cap names and a broader range of investment opportunities. The Fed is expected to signal its plans for interest-rate cuts next week, setting the stage for a potential cut in September.
As the market continues to navigate through mixed economic data and underpinned by a historically negative seasonal pattern, investors will be keeping a close eye on earnings reports and the overall direction of the market.
