More Stocks Are Joining The Gangbusters Rally, Fantastic For Investors

At long last, the Magnificent Seven are receiving additional members to bolster their already diminishing ranks. Following the Federal Reserve’s reaffirmation of its projection that it will reduce interest rates by three quarter points in 2024, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite indexes all reached new highs on Wednesday and Thursday. Following a string of high-pressure inflation readings over the past few months, investors were concerned that the central bank would revise its projections to include fewer than three rate decreases.

However, the path to higher prices has been built by a greater number of stocks than just Big Tech. The S&P 600 index, which is a measure of small-cap equities in the United States, has just reported a positive year-to-date performance. Because smaller businesses generate the majority of their revenue from consumers in the United States, they are considered to be bellwethers of the economy in the United States.

This is good news for Wall Street. Typically, small caps are active in industries such as the financial industry and the industrial sector, both of which tend to rise and decrease in tandem with the overall economic activity. When you see small-cap industrials leading, that is typically a sign that the market is saying things are on pretty stable footing here, according to Ryan Detrick, who is the chief market analyst at Carson Group.

In addition, their participation demonstrates that the market’s boom is not limited to the largest technology companies. Investors should take this as a positive indicator because a more widespread rally tends to produce a more robust rally. Gains in the market are less susceptible to pullbacks when they are not dependent on just a few names in the market. Prior to the enthusiasm that was caused by the Federal Reserve, the rise had already started to spread in recent weeks.

The reason for this, according to some investors, is that the corporate earnings beats, in conjunction with the good economic statistics, have reignited optimism for a soft landing, which is a scenario in which the Federal Reserve reduces inflation down to its objective of 2% without sparking a recession. Data from Ned Davis Research up until March 19 indicates that approximately 93% of businesses in the S&P 500 have reported their results for the fourth quarter, and 78% of those companies have exceeded their profit projections.

According to statistics from FactSet as of March 7, the term “recession” was uttered in 47 earnings calls of businesses represented in the S&P 500 during the fourth quarter. This represents the lowest count since 2021. On the other hand, the phrase “soft landing” was mentioned on 37 earnings calls, which is the biggest number of corporations that have mentioned the term in at least three years.

On the other hand, data on employment over the past several months demonstrates that the labor market is continuing to be resilient in spite of interest rates that are sitting at a 23-year high. Because of this, equities have continued to rise after the spectacular rally that occurred in the previous year, despite the fact that shares of Tesla and Apple have decreased. Alphabet, on the other hand, has not been able to keep up with the double-digit percentage gains that Magnificent Seven competitors Nvidia, Microsoft, Amazon, and Meta have achieved.

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