Small Caps Are Up Nearly 10% This Month, Outperforming Tech Megacaps – US Market Wrap

Wall Street traders betting that the Federal Reserve can engineer a soft landing boosted riskier sectors, with most stocks rising following a selloff that jolted markets around the world.

More than 300 S&P 500 companies rose, but the index fell. While economically sensitive groups such as energy, financial, and industrial shares advanced, the gauge’s most influential group, technology, faced renewed pressure. The megacaps that have led the bull market have continued to underperform smaller firms, which have gained nearly 10% in July.
As the S&P 500 continued to set new records in the first half of the year, some investors became concerned that only a few companies were participating in the rally. Outside of big tech, parts of the market are now soaring as investors believe the Fed is taming inflation without breaking the economy and will soon be able to cut interest rates.

Interestingly, equity traders welcomed the fact that the most recent economic data bolstered market bets on a rate cut in September, rather than earlier. Yes, policy easing usually benefits corporate America, but rushing to reduce borrowing costs may have the opposite effect on sentiment. It could signal that officials are concerned about a larger economic slowdown.

The S&P 500 was hovering around 5,400. The Russell 2000 index for smaller companies rose 1.5%, while a measure of the “Magnificent Seven” megacaps fell 0.6%. Alphabet fell as OpenAI allowed a small group of users to test a new set of search features. Tesla rallied after a 12% drop.