Traders work on the floor of the New York Stock Exchange on June 14, 2024.
Brendan Mcdermid | Reuters
The Dow Jones Industrial Average advanced to new highs on Tuesday, as the bull market broadened out beyond technology names on hopes of forthcoming interest rate cuts.
The Dow surged by 755 points, or 1.9%, hitting a new intraday record and on pace for its best day since June 2023. The small cap-focused Russell 2000 rose 3.4% and was on track for its fifth straight day of gains.
The S&P 500 added 0.6%. The Nasdaq Composite was up just 0.1% as technology shares — the big winners so far in the 2024 rally — largely sat Tuesday’s gains out.
The Dow, 1-day
Industrial bellwether Caterpillar climbed more than 4%, making it the second-biggest gainer in the Dow behind UnitedHealth. The insurer surged more than 6% on the back of better-than-expected second-quarter results.
Financials — another trailing bull market group — gained after earnings from Bank of America and Morgan Stanley came in ahead of analyst forecasts. Bank of America jumped 5%, while Morgan Stanley added more than 1%.
The rotation from megacap technology shares into small-cap and cyclical stocks began a week ago when June’s consumer price index showed the lowest inflation in three years. The reading was seen as a sign that inflation was nearing the Federal Reserve’s 2% target, and the central bank might be able to lower interest rates.
Traders now see 100% odds the Fed will cuts rates in September, according to the CME FedWatch tool. A rate cut is seen as boosting small caps and industrials more reliant on borrowing costs than cash-rich, megacap technology stocks that have been riding a wave of optimism around artificial intelligence.
In the last one week alone, the Russell 2000 has surged more than 10%, while the blue-chip Dow has gained almost 4%. The Nasdaq is near flat over the same period.
Russell 2000, 5 days
Notably, AI darling Nvidia and software giant Microsoft respectively dropped around 2% and 1% on Tuesday, adding to their losses in the past one week as the rest of the market has taken off.
“There’s a lot of momentum behind this rotation trade from from big-cap tech into small caps and into the average stock,” said Ross Mayfield, investment strategist at Baird. “It’s a rotation, but it’s much more about the upside in the more cyclical sectors in the market than a referendum on AI’s long-term potential.”
Retail sales data out Tuesday further validated investors’ belief that the Fed had achieved a so-called soft landing with the economy. June sales were unchanged, versus expectations for a decline. Excluding autos, Junes sales rose 0.4%, a larger gain than the 0.1% consensus forecast collected by Dow Jones.
This data “should be positive for markets,” said Quincy Krosby, chief global strategist at LPL Financial. “Investors prefer the launch of a Fed easing cycle to begin with a still solid economic backdrop.”
