Stock Market Jumps Broadly As Fed Rate Cut Bets Rise; Can The S&P 500 Reach 8,000 Next Year?
BY DAVID SAITO-CHUNG, INVESTOR'S BUSINESS DAILY
Updated 05:58 PM ET
Even in stock market writing, once in a while readers will come across the phrase "a tale of two cities." With nods to Charles Dickens, Tuesday's action reflected such a notion. But it also came with a (non-Oliver) twist.
While all of the key averages rose in unison, smaller issues led the rally amid increasing odds among fed funds rates futures traders that the Federal Reserve will cut short-term interest rates again on Dec. 10. Currently, the fed funds rate for overnight cash infusions to big banks stands at 3.75% to 4%.
Amid signs of cooling economic growth, investors took that as a positive sign not only for the stock market but also for the broader economy.
Stock Market Today: Index Analysis
On Wednesday, the Nasdaq gained 0.7% to 23,025. But the composite index also retook its 50-day moving average for the first time in seven sessions. Stock market history has repeatedly shown that investors tend to perform well when key indexes are rising above the 50-day line rather than dwelling below this technical level.
While the S&P 500's 0.9% rally certainly overshadowed the Nasdaq's, smaller companies ruled the roost, an intriguing reversal of fortune. For years, it's been the exact opposite. Large-cap and megacap names have dominated stock market returns, accounting for the lion's share of corporate earnings.
Most megacap techs joined Tuesday's rally, but many have lost much of their luster. Meta Platforms (META) gained 3.8%, the best among the megacap techs. But Meta stock is looking straight up at its falling 50-day moving average, not down at it. The stock's 27 Relative Strength Rating needs improvement.
The Dow Jones Industrial Average jumped 1.4% as the 10-year Treasury bond yield fell 3 basis points to 4%. But the S&P MidCap 400 stood out Tuesday, rising almost 1.8%. The SPDR S&P MidCap 400 (MDY) sits only a 1.6% gain away from taking out its Sept. 17 high of 608.79. Yet the Russell 2000 led them all, up 2.2%. At 2,465, the index of small caps is now up a bit for the quarter. It's risen 10.6% since Jan. 1.
Technicals Now
While all of the above indexes shoved back above their 50-day lines, advancers edged decliners by a 5-2 margin on the Nasdaq, and by 3-to-1 on the New York Stock Exchange. Total volume on Tuesday fell on both the main exchanges. However, the homepage of MarketSurge showed 680 stocks up in heavy turnover. Just 79 fell in above-average trade.
Hence, the IBD current outlook on Tuesday shifted up to a 20%-40% target level, up from 0%-20%. Investors can add limited exposure but keep a healthy wad of cash. Prefer stocks trading calmly after solid short-term runs or breakouts. Avoid stocks that seem to be shaking out both those going long and others selling short.
Stock Market Leadership
In Tuesday's trade, Broadcom (AVGO) bulked up 1.9%, more than double the Nasdaq's gain, and hit an all-time high of 388.13. But the megacap chip designer has made little progress since September. The stock has been whipsawing traders for weeks. Small- and midcap medical companies and large-cap health care institutions have performed better. Take a gander at the IBD 50 and Big Cap 20 lists for stock ideas in these areas.
Hospital giant HCA (HCA) on Monday closed above 500 for the first time, and extended its gain Tuesday. Lower interest rates help make bills from doctor visits and hospital stays a little easier to swallow. Three months ago, the stock moved past a 388.09 buy point in a nine-month saucer with handle.
Banks also steamed ahead Tuesday. The SSIM SPDR S&P Bank (KBE) exchange traded fund jumped 2.7% for its fifth win in six sessions. It hopped back above its 50-day moving average and notched a five-week closing high.
Going Forward
"Earlier this year, S&P earnings forecasts were sitting at about 5% growth for the S&P 500 ex-megacap tech – the S&P 493," Robert Maltbie, president of Singular Research, told IBD via email. "Now those estimates have risen to 11%, led by the industrial sector, real-asset infrastructure, energy technology and what we call second-derivative AI beneficiaries."
Caterpillar (CAT), a giant in mining and construction machines as well as diesel and natural gas-powered engines, stands out within the Dow industrials. The stock was added to SwingTrader on Tuesday. Wielding a solid 93 Relative Strength Rating, Caterpillar stock has traded quietly in recent weeks along its 21-day exponential moving average.
Singular's Market Momentum Indicator "shows a meaningful improvement in market breadth and earnings expectations," Maltbie said.
"We're seeing earnings growth above trend, accelerating sequentially. Critically, that growth is broadening beyond the Magnificent Seven into industrials, tech infrastructure, financials and selective consumer discretionary. We also see attractive 12-month upside potential, with our S&P 500 target now at 8,000," Maltbie added.
View the General Market Indicators chart page here.
Please follow Chung on X/Twitter: @saitochung and @IBD_DChung
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