The Standard & Poor’s 500 reached a new record on Tuesday as earnings reporting season heats up.
The ATH recorded by the index yesterday extended its bullish momentum into the week. The surge was propelled by gains in megacap and chip stocks, with investors closely monitoring corporate earnings, and keeping an eye out for any signals regarding potential interest-rate cuts.
While blue-chip US stocks are trading at record levels, small caps are somehow still feeling the pain.
In fact, despite the S&P 500 closing at a new high for the first time in two years on Friday, the Russell 2000 index – which tracks the share price of 1,996 companies with lower market capitalisations – is still trading 22% below its November 2021 peak.
This means that the widely tracked indicator technically still remains within a bear market, with high-interest rates still impacting lower-market-cap stocks negatively.
The March 2022 - July 2023 period was detrimental to businesses worldwide, as the Fed hiked interest rates from near-zero to around 5.5% in an attempt to battle inflation.
Russell 2000 companies tend to be particularly reliant on debt, so it is not that much of a surprise that they have felt the most pain from the Fed’s war on soaring prices.
Blue-chip stocks were also impacted by the higher rates in 2022, with the S&P 500 logging its worst year since the 2008 financial crisis. However, the benchmark index rebounded last year, powered higher by the AI investing hype and craze.
The “Magnificent Seven” have experienced substantial gains, which is the main reason why the index has hit record highs this year.
As of close of trading on Friday last week, the index had gained $588 billion in market capitalisation so far this year, driving the total to $40.626 trillion, according to Dow Jones Market Data.
The seven tech stars – Tesla, Nvidia, Meta Platforms, Alphabet, Microsoft, Apple, and Amazon.com – accounted for $463 billion of that gain, which leaves just $125 billion for the other 493 companies in the index.
Some Wall Street gurus believe the Fed will eventually manage to orchestrate a so-called “soft landing”, which is a dreamlike scenario where inflation is brought down to 2% without triggering any spike in unemployment, or a severe recession.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.