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It was only a month ago that Wall Street Breakfast pointed to a sector rotation in the making, and the movement appears to be picking up steam. There are many reasons for the shift, including value searching due to sky-high multiples and a broadening of a rally that was supercharged by mega-cap tech stocks. Increasing rhetoric surrounding Fed rate cuts has also ignited excitement about the lending and growth environment for smaller companies, while the Trump Trade has put a focus on other parts of the market that could benefit from a new presidency.
Snapshot: The Dow Jones Industrial Average (DJI) closed within striking distance of 41,000 points on Tuesday, buoyed by a post-earnings surge in UnitedHealth. The index climbed 1.9%, tacking on an additional 742 points to mark its best day of 2024. After being on fire for five consecutive sessions, things are cooling for major stock index futures in the premarket, but some other rotation plays continue to stand out.
The Russell 2000 (RTY), a notable index that tracks a group of 2,000 small-cap U.S. stocks, soared 3.6% on Tuesday and has advanced a whopping 11% over the last five trading days. That's the largest such move for the index since April 2020 and it's now at its highest closing level since January 2022. Russell 2000 earnings are due to "see very favorable 'compares' against the same quarter of 2023," according to SA analyst Brian Gilmartin, who also explores what forward revisions mean for the S&P 500 (SP500).
As mentioned previously on WSB: A rotation could be healthy, especially for those concerned about concentration risk or overstretched valuations. It could also help sustain the current rally, which is predicated on a soft landing and Fed easing cycle, and boost other sectors that haven't seen significant appreciation this year. While a pause may be warranted, don't immediately dismiss the staying power of tech, as well as the enthusiasm surrounding artificial intelligence and accompanying corporate profits.