On Friday, Wall Street’s major indexes finished the trading day with notable gains, driven by a rebound in technology stocks and positive inflation data that bolstered hopes for an imminent cut in interest rates by the Federal Reserve. Despite the uptick, the S&P 500 and Nasdaq Composite closed the week in negative territory, marking their second consecutive week of declines. Conversely, the Dow Jones Industrial Average ended the week on a high note, buoyed by significant gains from industrial and technology sectors.
Key Market Movements
Dow Jones Industrial Average: The Dow posted a solid performance on Friday, ending the day with a rise of 654.27 points, or 1.64%, to close at 40,589.34. This gain helped the Dow finish the week up by 0.75%. The index’s positive performance was significantly influenced by industrial conglomerate 3M, which saw its stock skyrocket by 23%—its largest one-day percentage gain in decades. The surge came after 3M raised the lower end of its annual adjusted profit forecast, providing a boost to investor confidence in the company.
S&P 500: The broader S&P 500 index gained 59.88 points, or 1.11%, to close at 5,459.10. Despite this Friday gain, the S&P 500 ended the week with a decline of 0.82%. The index’s performance was aided by a general rise in all 11 S&P sectors, with Industrials and Materials leading the gains.
Nasdaq Composite: The tech-heavy Nasdaq Composite rose by 176.16 points, or 1.03%, finishing at 17,357.88. However, the Nasdaq experienced a weekly drop of 2.08%, reflecting ongoing volatility in the technology sector.
Tech Sector Dynamics
The tech sector saw a resurgence on Friday, with five of the so-called “Magnificent Seven” tech giants posting gains. Meta Platforms led the charge with a 2.7% increase. However, not all tech stocks were on the rise. Tesla and Alphabet both experienced declines, falling by 0.2% each. Alphabet’s stock dropped to its lowest closing price since May 2, following a disappointing earnings report that had contributed to a broader market sell-off earlier in the week.
As the market anticipates further earnings reports from major tech companies including Apple, Microsoft, Amazon, and Meta, the results are expected to play a crucial role in determining the market’s direction. Greg Boutle, head of U.S. equity & derivative strategy at BNP Paribas, emphasized the importance of these upcoming reports in setting the market’s tone and influencing whether the rotation from high-momentum stocks to underperforming mid- and small-cap stocks will continue.
Market Rotation and Small-Cap Stocks
Recent weeks have seen a notable shift in market dynamics, with small-cap stocks gaining prominence. The Russell 2000 and S&P Small Cap 600 indexes both achieved their fourth consecutive closing highs of the week. The Russell 2000 recorded its third straight weekly gain, marking its best three-week performance since August 2022. This rise in small-cap stocks has been supported by moderate increases in June U.S. prices, signaling cooling inflation and potentially setting the stage for the Federal Reserve to start easing monetary policy in September.
This shift toward small-cap stocks has also benefited cyclical sectors of the economy. On Friday, all 11 sectors of the S&P 500 were higher, with Industrials and Materials leading the way. Small-cap stocks have outperformed the S&P 500 by more than 10% over the past month, reflecting broader market trends.
Fed Policy Expectations
Market expectations for Federal Reserve policy have been influenced by recent economic data. Following the release of Personal Consumption Expenditures (PCE) data, which showed a moderate rise in U.S. prices, traders are pricing in an 88% chance of a 25-basis-point rate cut at the Fed’s September meeting. Furthermore, traders anticipate two rate cuts by December, according to data from LSEG.
Adam Hetts, global head of multi-asset at Janus Henderson, highlighted that stable economic data has been beneficial for the broader market rotation. This broader rotation has been characterized by a move away from high-momentum stocks towards small-cap and cyclical sectors, contributing to a diverse performance across the market.
Notable Stock Movements
Among individual stock performances, several companies experienced significant movements:
- Deckers Outdoor: The company saw its stock jump 6.3% after raising its annual profit forecast, reflecting strong business performance.
- Baker Hughes: The oilfield services firm’s stock climbed 5.8% following a strong second-quarter profit report that exceeded estimates.
- Norfolk Southern: The rail operator’s stock soared by 10.9%, its largest one-day percentage gain since March 2020, after reporting a second-quarter profit that surpassed Wall Street expectations due to robust pricing.
- Dexcom: The medical device maker experienced a dramatic decline of 40.6% after cutting its annual revenue forecast, reflecting concerns about its financial outlook.
Trading Volume
Trading volume on U.S. exchanges totaled 10.92 billion shares on Friday, slightly below the 11.61 billion average for the past 20 trading days. This volume indicates a stable level of trading activity, contributing to the overall market dynamics.
In summary, while Wall Street’s major indexes ended the week with mixed results, the broader market is closely watching upcoming earnings reports and Federal Reserve policy signals. The shift towards small-cap stocks and cyclical sectors, coupled with expectations of monetary policy adjustments, will likely continue to shape market trends in the coming weeks.