Thursday saw a strong resurgence in Wall Street’s recent rebound from the earlier-month selloff, fueled by encouraging economic data that suggested earlier recession fears might have been overblown. Investors welcomed the news, driving the market higher across the board. This risk-on sentiment was particularly evident in the performance of small-cap stocks, with the Russell 2000 index surging nearly 3% for its best day in a month. The major indices, including the S&P 500 and the Nasdaq 100, are also on track to extend their winning streaks to six consecutive sessions, indicating a positive shift in market sentiment.
Key Takeaways
- Robust economic data, including strong retail sales figures and declining initial jobless claims, fueled a risk-on sentiment in the market, defying earlier recession fears.
- The Russell 2000 index soared nearly 3%, outperforming its larger counterparts and marking its best day in a month, highlighting the increased optimism for smaller companies.
- Expectations for aggressive rate cuts from the Federal Reserve shifted, with a 25-basis-point cut now more likely than a 50-basis-point cut in September, as the economy appears more resilient than previously anticipated.
- Bond yields surged, leading to a 1.1% decline in the iShares 20+ Year Treasury Bond ETF (TLT), as investors shifted their focus towards riskier assets.
- The U.S. dollar gained strength, rising over 1% against the Japanese yen, further underpinned by a widening yield differential.
Strong Economic Data Fuels Market Optimism
The positive market momentum was driven by a combination of encouraging economic releases. Retail sales figures for July indicated a 1% month-over-month increase, significantly exceeding analysts’ expectations of 0.3% and marking a sharp rebound from June’s stagnation. This robust growth in consumer spending suggests a healthy and resilient U.S. economy. Further bolstering this positive outlook, initial unemployment claims declined last week to 227,000, further indicating a strong labor market. These economic data points painted a picture of a more resilient economy than previously anticipated, calming recession fears.
Shifting Expectations for the Federal Reserve
The positive economic data also led to a shift in expectations regarding future Federal Reserve actions. As investors viewed the economy as more robust, the likelihood of a 50-basis-point rate cut in September diminished. Traders now assign a 73% probability to a smaller 25-basis-point cut, indicating a less aggressive approach to monetary easing. This shift in expectations reflects the evolving market sentiment toward a more stable economic landscape and less immediate need for drastic policy interventions.
Impact on Markets
The market’s risk-on sentiment manifested in several key areas. Bond yields, which move inversely to prices, surged as investors moved away from safe-haven assets like bonds. This resulted in a 1.1% decline in the iShares 20+ Year Treasury Bond ETF (TLT). The U.S. dollar also strengthened, with the Invesco DB USD Index Bullish Fund ETF (UUP) rising 0.3%, driven by a widening yield differential that pushed the greenback up over 1% against the Japanese yen. This indicates that investors are increasingly drawn to riskier assets, such as stocks and commodities, with a belief in the economy’s strength and the potential for higher returns.
In commodities, gold edged up 0.4%, while silver saw a substantial 3% rally. Crude oil prices rose by 1.6%, closing at $77.60 per barrel. Bitcoin (BTC/USD) also experienced a 2% gain, reflecting the broader risk-on sentiment in the market. This suggests that investors are seeking more growth-oriented investments, with a view that further economic improvement could support higher commodity prices.
Major US Indices and ETFs
Major Indices | 1-day %chg |
Russell 2000 | 3.0% |
Nasdaq 100 | 2.3% |
S&P 500 | 1.6% |
Dow Jones | 1.3% |
According to Benzinga Pro data:
- The SPDR S&P 500 ETF Trust (SPY) was 1.6% higher to $552.26.
- The SPDR Dow Jones Industrial Average (DIA) rose 1.3% to $405.32.
- The tech-heavy Invesco QQQ Trust Series (QQQ) rallied 2.4% to $473.46.
- The iShares Russell 2000 ETF (IWM) rocketed 3% to $212.89.
- The Technology Select Sector SPDR Fund (XLK) outperformed, up by 2.5%. The Real Estate Select Sector SPDR Fund (XLRE) lagged, down by 0.3%.
Wednesday’s Stock Movers
- Ulta Beauty Inc. (ULTA) skyrocketed by 12% after Warren Buffett’s Berkshire Hathaway revealed a significant new investment of approximately $260 million in the company. This highlights the confidence that major investors have in the company’s potential for future growth and profitability.
- Cisco Systems Inc. (CSCO) rallied 7% after reporting stronger-than-expected results last quarter. The company’s strong performance reflects the growing demand for its networking hardware and software solutions, indicating a healthy and competitive technology sector.
- Other stocks moving in reaction to earnings reports included Alibaba Group Holding Limited (BABA), up 0.3%, AST SpaceMobil Inc. (ASTS), up 43%, Deere & Company (DE), up 6.6%, monday.com Ltd. (MNDY), up 1.1%, JD.com, Inc. (JD), up 4.4% and Walmart Inc. (WMT), up 6.5%. These positive earnings reports reflect strong performance across various sectors, further underpinning the market’s positive momentum.
- Companies reporting after the close are Applied Materials, Inc. (MAT), Coherent Corp. (COHR) and H&R Block, Inc. (HRB). Investors will be closely watching these reports for further insights into the health of the tech and financial sectors.
Conclusion
Thursday’s market rally underscores the positive shift in investor sentiment, fueled by encouraging economic data and a more optimistic outlook on the economy’s resilience. The strong performance of small-caps reflects the increased confidence in smaller companies’ ability to capitalize on the improving economic environment. While the Federal Reserve’s future actions remain uncertain, the market’s response suggests that investors are increasingly confident in the economy’s prospects and are looking towards riskier assets for potential growth.
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