Wall St Week- US stock rally expands as investors wait for Fed
Investors worried about technology stocks can take heart from the broadening rally of U.S. shares. The markets are awaiting key job data and Federal Reserve rate cuts expected in September.
Investors are putting their money into less popular value stocks and smaller companies, as the fortunes of big tech stocks like Nvidia and Apple continue to rise and fall. They expect lower interest rates to help these stocks. At its meeting to discuss monetary policy on September 17-18, the Fed is expected start a cycle of rate cuts. Investors see the trend that gained momentum last month, before fading during a sell-off in early August, as a positive development for a market rally driven by a cluster giant tech names. Nvidia alone, which has been able to benefit from artificial intelligence bets, has contributed roughly a quarter of S&P 500’s 18.4% gain year-to date. Liz Ann Sonders is the chief investment officer of Charles Schwab. She said, "No matter what you do with it, you've seen a significant broadening and I believe that this has legs." Value stocks are companies that trade at a discount to metrics such as book value or the price-to earnings. They include sectors like financials and industries. Investors believe that small-caps and these sectors could continue to rise if the Fed lowers borrowing costs, while the economy remains healthy. Charles Schwab's data shows that the market has been rotating more recently, with 61% outperforming the S&P 500 index over the last month compared to just 14% in the previous year. According to BofA Global Research, the Magnificent 7 group of tech giants, which includes Nvidia and Microsoft, has underperformed other S&P 500 stocks by 14 percentage points after the release of the weaker than expected U.S. inflation data on July 11. Stocks also held steady after Nvidia's forecast fell short of expectations this week. This is another indication that investors are looking beyond technology. The equal-weight S&P 500, which is a proxy of the average stock performance, has hit a new record this week. It's up about 10.5% so far in the year, narrowing the gap between it and the S&P 500.
Analysts at Ned David Research stated that when market breadth improves, it means that more stocks are rising on the expectation that economic conditions will support growth in earnings and profitability. General Electric, Targa Resources, and other midstream energy companies have all performed well in value stocks this year. They are both up 70% and 68% respectively. Russell 2000, which is a small-cap index, has risen 8.5% since its lowest point of the month. However, it still hasn't reached its peak in July.
Right now, the jobs report is going to receive even more attention.
Jason Alonzo is a Harbor Capital portfolio manager. He said that investors are unlikely to abandon tech stocks, especially if they can buy them on the cheap due to volatility.
According to LSEG, technology stocks will continue to grow above market earnings every quarter until 2025. The third-quarter earnings came in at 15,3%, compared to a gain of 7.5% for the S&P 500.
Alonzo explained that people will often take a breather after a good run, and then look for other opportunities. But technology is the most important driver of growth.
text_section_type="notes">Wall St Week Ahead runs every Friday. Click here to view the daily stock exchange report (Reporting and editing by Ira Iosebashvili, Richard Chang, and David Randall).
(source: Reuters)
