U.S. Market Rotation to Small Cap Stocks Continues After Alternative Measures of Inflation Eases

Barry Adams
26 Jul, 2024
New York City

Stocks rebounded in Friday's trading, and market indexes trimmed weekly losses as investors reviewed the latest update on an alternative measure of inflation. 

The S&P 500 index and the Nasdaq Composite jumped more than 0.7%, but the small-cap-focused Russell 2000 jumped nearly 2% as investors rotated out of megacap stocks. 

Friday's market rally was powered by a benign inflation report that showed waning inflationary pressures. 

The persona consumption expenditures price index rose 0.1% on the month and eased to 2.5% from 2.6% from a year ago in June, according to a report by the Bureau of Economic Analysis on Friday. 

The core PCE price index, which excludes volatile food and energy prices, gained 0.2% on the month but held steady at 2.6% from a year ago. 

The PCE price index is preferred by the Fed's policymakers, but the index is controversial as it significantly understates the inflation experienced by most urban families. 

The inflation data arrived on the final day of the volatile week, as investors reacted to the flood of corporate results and continued to participate in a market rotation that favors smaller companies and cyclical sectors of the economy. 

Investor expectations remain high for a possible rate cut at the end of the Fed's next policy meeting in September. Policymakers continue to send mixed signals, stressing that inflation is on a downward trajectory, but more evidence of the sustainable downward trend may be needed. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.9% to 5,447.37, the Nasdaq Composite jumped 0.7% to 17,301.72, and the Russell 2000 index rose 1.9% to 2,264.21.

The yield on 2-year Treasury notes edged lower to 4.39%, 10-year Treasury notes decreased to 4.20%, and 30-year Treasury bonds edged lower to 4.46%.

WTI crude oil decreased $0.87 to $77.40 a barrel, and natural gas prices edged down 1 cent to $2.02 a thermal unit.

Gold decreased by $13.44 to $2,377.11 an ounce, and silver declined by $0.05 to $27.77. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 104.27.

 

U.S. Stock Movers 

3M jumped 15.7% to $119.65 after the diversified healthcare and consumer goods company reported better-than-expected earnings in its latest quarter and raised its full-year earnings per share outlook. 

Coursera jumped 45% to $10.76 after the online course provider reported better-than-expected quarterly revenue of $170 million. 

DexCom plunged 40.2% to $64.26, after the medical device maker reported weaker-than-expected second quarter revenue. 

Boston Beer increased 4.5% to $282.71 after the maker of craft beer and beverages reported better-than-expected second-quarter sales of $579 million and earnings per share of $4.39.