A series of S&P 500 stocks have grown, pushing it to a record high and easing concerns that most of 2024’s gains were concentrated in a few big tech names.
The S&P 500 went up 5.5% in the third quarter. This time, however, it’s the “optimism that the Fed’s interest rate cuts will boost U.S. growth” that’s pushing investors to buy stocks of regional banks, industrial companies, and others that benefit from a strong economy and lower interest rates. It’s not just about tech stocks that have had big gains this year.
Over 60% of S&P 500 stocks outperformed the index this quarter, compared to around 25% in the first half of the year. At the same time, the equal-weight version of the S&P 500 – representing the average stock – rose 9%, outperforming the regular S&P 500, which is more influenced by big-cap stocks like Nvidia and Apple.
This broader rally is a good sign for stocks, especially after concerns that the market could tumble if the tech leaders lose their appeal.
The “soft landing” story of steady growth will be tested with job data at the end of this week and company earnings reports in October.
The Fed kicked off its first rate cutting cycle in four years earlier this month, trimming rates by 50 basis points, a move Fed Chair Jerome Powell said was aimed at protecting the recovering economy.
Traders are betting on another big cut when the Fed meets again in November, expecting a total of about 190 basis points in cuts through the end of 2025, according to LSEG data.
Lower interest rates are also giving smaller companies a break, as they’ve been struggling with high borrowing costs.
Stocks with high dividends are catching the attention of income-seeking investors, as bond yields drop alongside rates.
“I find it to be quite healthy that tech has kind of consolidated,” said King Lip, chief strategist at Baker Avenue Wealth Management. “We’re not in a bear market for tech by any means. But you’ve definitely seen some evidence of rotation”
Investors may need more signs of economic strength for this rally to keep going. They also want to see strong earnings from non-tech companies in the months ahead to justify their gains.
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