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Market Recap

Last week was wild! 📈 For the week ending September 20, 2024, markets saw a significant boost as the Federal Reserve cut interest rates by 50 basis points—a move everyone was buzzing about. This aggressive cut spurred optimism across equities, especially benefiting sectors like technology and small caps.

• SPY (S&P 500 ETF) surged during the week, led by tech and growth stocks. Investors grew more confident that the Fed’s dovish pivot would support the broader economy, although some concerns about a slowdown in consumer spending lingered. The SPY weekly candle chart shows indecision, but it's not bearish. With Fed speakers lined up next week and Powell speaking on the 26th, plus the key PCE report dropping on Friday, expect some volatility—but the market's tone remains bullish! 💪

• QQQ (Nasdaq 100 ETF) had a stellar week, buoyed by high-flying tech companies, especially those in AI and semiconductors. Companies like Nvidia and Microsoft saw renewed buying interest as lower rates typically favor growth stocks with high valuations. Usually, the second half of September is the weakest time of the year due to corporate buyback blackouts. However, this time, negative seasonality might not prevail.

• IWM (Russell 2000 ETF), tracking small-cap stocks, outperformed its larger counterparts, rallying on the back of lower borrowing costs. Small caps often benefit more directly from rate cuts, as they're more sensitive to economic conditions and changes in credit availability. This sector's outperformance reflects optimism that domestic businesses may see a revival if financing conditions improve.

Last week, as we predicted, the 50 bps rate cut brought a broader rally—and it totally happened! Specifically, we recommended small caps (IWM), gold (GLD), and META, and they did extremely well. On the other hand, we were negative on JPM (JP Morgan) and XOM (an energy play), but they held their ground. We still believe the financial sector is impacted by lower rates, as interest rate reductions bring lower margins for credit cards, mortgage loans, and other loans, impacting banks' P&L overall. Also, energy stocks could go down due to a hard landing scenario, as the Fed often cuts rates when they notice a fall in payroll data, which impacts energy growth.

Looking ahead to next week, investors will keep a close eye on further economic data, particularly consumer confidence and housing numbers, which will provide additional clues about the strength of the economic recovery. Market participants are also anticipating updates on the UAW strike and ongoing discussions regarding potential fiscal stimulus measures, which could further impact sentiment.

Volatility may remain elevated, especially with the Fed signaling more rate cuts may be possible if economic conditions deteriorate further. However, the rally in tech and small caps suggests the market is optimistic about a potential soft landing.

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