Wall Street traders continued to shift their focus away from the mega-cap tech stocks that have driven the market’s rally, rotating into smaller, economically sensitive stocks. The Russell 2000 (RUT) index of smaller companies surged 1.5%, reaching its highest level since November 2021, while an equal-weighted version of the S&P 500 (SPY) outperformed the main index. The broadening of the rally suggests investors may be seeking opportunities beyond large tech names, which have been widely owned and may face fewer catalysts moving forward.
Morgan Stanley (MS) posted a 32% jump in third-quarter profit, outperforming analyst expectations and lifting its stock by 7.5%. United Airlines (UAL) also impressed investors, with shares soaring 11% after beating earnings estimates. Despite strength in select sectors, the Nasdaq 100 (QQQ) fell 0.2%, as large-cap tech names like Nvidia and Apple (AAPL) retreated. However, Nvidia (NVDA) rebounded slightly after an earlier 5% dip. The S&P 500 edged up 0.1%, while the Dow Jones Industrial Average (DIA) added 0.4%.
Market Overview:- Rotation into small-cap stocks signals investor interest beyond mega-cap tech.
- Morgan Stanley and United Airlines posted better-than-expected earnings, boosting shares.
- Treasury yields declined as U.S. inflation and job market concerns continued to weigh on investor sentiment.
- Russell 2000 hit its highest level since November 2021, gaining 1.5%.
- Morgan Stanley surged 7.5%, while United Airlines jumped 11% on earnings beats.
- Tech stocks, including Nvidia, saw declines, dragging the Nasdaq 100 lower.
- Traders will monitor upcoming earnings reports for more signs of sector rotation.
- ECB rate decisions and U.S. economic data, including retail sales and jobless claims, will impact market movements this week.
- Ongoing market volatility may spur further rotation out of tech into economically sensitive stocks.
While the broader market is experiencing a rotation away from tech megacaps, smaller, more economically sensitive stocks are gaining momentum. With strong earnings from companies like Morgan Stanley and United Airlines, investors are finding opportunities outside of tech. However, the volatility in tech stocks such as Nvidia indicates that the market remains cautious as economic uncertainty continues to loom. The movement into small caps and cyclical stocks suggests that the rally could continue to broaden if investors maintain their focus on earnings strength in non-tech sectors.
The key focus for the remainder of the week will be the European Central Bank’s rate decision, U.S. retail sales data, and jobless claims figures, all of which could influence the next stage of market rotation. As the year-end approaches, traders will also be eyeing additional corporate earnings reports for further signs of strength outside the tech sector.
