Where Could This Rally Lead?
A Widespread Rally Sends Wall Street Toward Records, Even as Big Tech Falters
How are the Markets Holding?
A widespread rally is pushing five out of every six stocks in the S&P 500 higher, with the index up 0.4% in afternoon trading. This surge is positioning the index to potentially surpass its all-time high set last week. Leading the market, the Dow Jones Industrial Average leaped 651 points, or 1.6%, a day after setting its own record. In contrast, the Nasdaq composite was lagging with a dip of 0.1% as of 2:31 p.m. Eastern time.
Key Drivers of the Rally
UnitedHealth Group is a major driver behind the market's rise, reporting stronger-than-expected results for the spring despite losses from a significant cyberattack. Its stock surged 6%, reflecting growth in both its Optum and UnitedHealth businesses. Bank of America also rallied, climbing 5.5% after reporting stronger-than-forecast profits, bolstered by growth in its investment banking division.
These gains helped offset declines in several influential Big Tech stocks, which have a substantial impact on indexes due to their large market capitalizations. Nvidia, for instance, was the heaviest weight on the S&P 500, dropping 2.1%. However, this decline is minor compared to Nvidia's dramatic rise over the past year, driven by excitement around artificial intelligence technology. Nvidia shares are still up 154% for the year.
Market Breadth and Small-Cap Performance
Market analysts have been hoping for a broader market performance, where many stocks rise, creating a healthier market dynamic. Currently, only 24% of companies in the S&P 500 are outperforming the index, a slight decrease from last year's 26%, according to Solita Marcelli of UBS Global Wealth Management.
Signaling broader market participation, smaller company stocks outpaced larger rivals after a period of lagging performance. The Russell 2000 index of smaller stocks jumped 2.9%, significantly outpacing the S&P 500's gain.
Volatility in Trump-Linked Stocks
Several stocks that surged the previous day due to heightened expectations for Donald Trump retaking the White House gave back some gains. Trump Media & Technology Group fell 8.3% after a 31.4% jump the day before. Shares of the company behind Trump's Truth Social platform often experience large swings.
Bond Market Movements
In the bond market, longer-term yields fell, while shorter-term yields rose following a report showing steady U.S. retail sales last month, contrary to economists' expectations for a decline. The yield on the 10-year Treasury decreased to 4.17% from 4.23% late Monday, providing a solid boost to stock prices. This drop in yields is driven by expectations of slowing inflation, potentially prompting the Federal Reserve to cut interest rates soon.
Federal Reserve Outlook
Tuesday's stronger-than-expected retail sales data might give Fed officials pause, as too-strong activity could sustain inflationary pressures. However, traders are betting on a 98% probability that the Fed will cut its main interest rate in September, a significant increase from the 70% chance seen a month ago.
The Federal Reserve faces risks on both sides of its current strategy. Easing interest rates too late could trigger a recession, while easing too soon might allow inflation is slowing. The latest retail sales data indicates that the economy remains resilient.
International Market Performance
Internationally, stock indexes were lower across much of Europe, while Asian indexes were mixed. Notably, Hong Kong’s Hang Seng index dropped 1.6%, marking a significant movement.
Overall, today's rally reflects a healthier breadth of market participation, with gains across various sectors helping to offset declines in Big Tech stocks. Investors remain cautiously optimistic amid mixed economic signals and ongoing adjustments in Federal Reserve policies.