Stock Rotation Lifts Small Caps to Three-Year High: Markets Wrap

Stocks rose for a fifth straight session, Bitcoin topped $84,000 and the dollar was on track for a one-year high, with investors continuing to bet those trades will benefit from President-elect Donald Trump’s agenda.

Economically sensitive shares led gains, with the Russell 2000 index of smaller firms hitting the highest since 2021. A closely watched gauge of banks climbed 2.8%. Most big techs fell, though Tesla Inc. jumped 7.8%. An equal-weighted version of the S&P 500 — where the likes of Apple Inc. carry the same heft as Dollar Tree Inc. — beat the US benchmark. That gauge is less impacted by the largest companies — providing a glimpse of hope the rally will broaden out.

US inflation probably moved sideways at best in October, highlighting the uneven path of easing price pressures in the home stretch toward the Fed’s target. The core consumer price index due on Wednesday, which excludes food and energy, likely rose at the same pace on both a monthly and annual basis compared to September’s readings.

“With the election and another rate cut in the rear-view mirror, the question is whether bulls can keep pushing the market to new highs,” said Chris Larkin at E*Trade from Morgan Stanley. “Aside from any potential profit-taking after such a strong surge, this week’s inflation data may determine whether the market pads its gains.”

The S&P 500 was up 0.1%, hitting the 6,000 mark and heading toward its 51st record this year. The Nasdaq 100 lost 0.3%. The Dow Jones Industrial Average gained 0.8%.

Treasury futures were mildly lower as the cash market was closed due to a US holiday. The Bloomberg Dollar Spot Index rose 0.6%. Bitcoin options traders are already eyeing a landmark price of $100,000 for the cryptocurrency, after it surged to a fresh record on hopes for a more crypto-friendly administration. 

Oil extended declines as a soft outlook for demand in China continued to plague the market.

The stock market could rally stronger into the end of the year following Trump’s presidential election victory than it did when he won the US presidency eight years ago, according to JPMorgan Chase & Co.’s trading desk.

“I expect 2024 returns to be larger than 2016,” Andrew Tyler, the bank’s head of US market intelligence, wrote in a note to clients Monday. A big advantage for the S&P 500 is weakness outside the US, with China, the UK, EU, Canada and Mexico all experiencing softer growth than they did back then.

The “animal spirits” being set loose by the economic policies of President-elect Trump will send the S&P 500 to 10,000 by the end of the decade, according to veteran strategist Ed Yardeni. 

His uber-bullish prediction, which would represent a 66% surge by 2030, is another sign that Wall Street is growing increasingly optimistic about stock markets in the wake of the US election. Yardeni lifted year-end targets to 6,100 for 2024, 7,000 for 2025 and 8,000 for 2026. 

“Stock investors are also thrilled by the regime change to a more pro-business administration promoting tax cuts and deregulation,” he wrote in a note on Monday.

US equities look a bit stretched from a valuation, positioning and sentiment perspective, according to Lori Calvasina at RBC Capital Markets.

She says valuations have not yet peaked on either the S&P 500 nor the Russell 2000 index, but notes there’s far less room to expand going forward.

The sustainability of the stock rally following the US election win will depend on the behavior of the bond market, according to JPMorgan Chase & Co. strategists led by Mislav Matejka. Yields approaching 5% could prove trickier for risk assets to digest, they said.

Corporate earnings are set to become one of the biggest drivers of US stocks as investor focus returns to economic growth following the election.

With the third-quarter reporting season in its final stage, S&P 500 companies have posted an 8.4% increase in profits — double the expected increase, according to data compiled by Bloomberg Intelligence. Wall Street is even more optimistic for next year, as analysts expect earnings to jump 13% in the biggest increase since 2021, according to BI.

Some of the main moves in markets:

This story was produced with the assistance of Bloomberg Automation.

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