Broadening gains in US stock market underscore optimism on economy
More than 60% of S&P 500 components outperformed index so far this quarter
Fed rate cuts boost regional banks, industrials, and small-cap stocks
Seven of S&P 500's 11 sectors outperforming the index in Q3
By Lewis Krauskopf
NEW YORK, Sept 30 (Reuters) -More stocks are participating in the S&P 500’s latest march to record highs, easing concerns over a rally that has been concentrated in a handful of giant technology names for much of 2024.
The S&P 500 .SPX is on track to gain 5% in the third quarter, which ends on Monday. This time, however, optimism that the Federal Reserve’s rate cuts will boost U.S. growth is pushing investors into shares of regional banks, industrial companies and other beneficiaries of a strong economy and lower rates, in addition to the tech-focused stocks that have already seen massive gains this year.
More than 60% of S&P 500 components have outperformed the index so far 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 .SPXEW -- a proxy for the average index stock -- has gained 9% in the quarter, outperforming the S&P 500, which is more influenced by the heavily weighted shares of megacaps such as Nvidia NVDA.O and Apple AAPL.O.
The broadening rally is an encouraging sign for stocks, investors said, following concerns that the market could be vulnerable to a reversal if the cluster of tech names propping it up fell out of favor.
The “soft-landing” narrative of resilient growth will be tested by employment data at the end of the week and the start of corporate earnings season in October.
The second half of the year so far is "almost a mirror image of what the first half was," said Kevin Gordon, senior investment strategist at Charles Schwab. "Even if the megacaps aren't contributing as much, as long as the rest of the market is doing well... I think that's a healthy development.”
The Fed kicked off its first rate cutting cycle in four years earlier this month with a 50-basis point reduction, a move Chairman Jerome Powell said was meant to safeguard a resilient economy. Traders are pricing an even chance of another jumbo-sized reduction when the central bank meets again in November and project over 190 basis points of cuts through the end of 2025, according to LSEG data.
Various corners of the stock market are benefiting from expectations of lower rates and steady growth.
The S&P 500’s industrial .SPLRCI and financials .SPSY sectors - seen by investors as among the most economically sensitive areas - are up 10.6% and about 10%, respectively, in the third quarter.
Falling rates are also a boon to shares of smaller companies, which disproportionately struggle with elevated borrowing costs. The small-cap focused Russell 2000 .RUT is up nearly 9% this quarter.
The market’s bond proxies - stocks with strong dividends - are also attracting investors seeking dividend income as bond yields fall alongside interest rates. Two such sectors, utilities .SPLRCU and consumer staples .SPLRCS, have climbed 18% and 8%, respectively so far this quarter.
Mark Hackett, chief of investment research at Nationwide, said the broadening builds on a trend that appeared before the September 17-18 Fed meeting.
"We were going to have this greater participation, this leveling of performance among sectors, and then you had the Fed cut more aggressively and that's leading to... an acceleration of that trend," he said.
'QUITE HEALTHY'
In all, seven of the S&P 500's 11 sectors are outperforming the index in the third quarter. By comparison, only technology and the communications sector, which includes Google parent Alphabet GOOGL.O and Facebook owner Meta Platforms META.O, outperformed the broader index in the first half of the year.
The S&P 500 is up more than 20% year-to-date, at record-high levels.
Meanwhile, the overall influence of the megacaps has moderated. The combined weight in the S&P 500 of the "Magnificent Seven" -- Apple, Microsoft MSFT.O, Nvidia, Amazon AMZN.O, Alphabet, Meta and Tesla TSLA.O -- has declined to 31% from 34% in mid-July, according to LSEG Datastream.
"I find it to be quite healthy that tech has kind of consolidated," said King Lip, chief strategist at BakerAvenue Wealth Management. "We're not in a bear market for tech by any means. But you've definitely seen some evidence of rotation."
Investors would likely need to see further proof of economic strength for the broadening trend to continue. Jobs data on Oct. 4 will be one test of the soft landing scenario, after the prior two employment reports were weaker than expected.
Market participants will also want to see non-tech firms deliver strong earnings in the months ahead to justify their gains.
Magnificent Seven companies are expected to increase earnings by about 20% in the third quarter, against a profit rise of 2.5% for the rest of the S&P 500, according to Tajinder Dhillon, senior research analyst at LSEG. That gap is expected to shrink in 2025, with the rest of the index expected to increase earnings by 14% for the full year against a 19% rise for the megacap group.
In a soft landing scenario, the Magnificent Seven "should not have to carry the profit rebound alone," Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a recent report.
"We are in the 'show me' stage for the soft landing," Shalett said.
Shrinking the gap https://reut.rs/3ZIUYxk
Reporting by Lewis Krauskopf; editing by Ira Iosebashvili and Bill Berkrot
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
