Stock rotation takes small caps to the highest level in three years: markets are closing in

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

Economically sensitive stocks led gains, with the Russell 2000 index of smaller companies hitting its highest since 2021. A closely watched gauge of banks rose 2.8%. Most major tech companies fell, although Tesla Inc. increased by 7.8%. An equally weighted version of the S&P 500 – where Apple Inc. has the same weight as Dollar Tree Inc. – beat the US benchmark. This metric is less influenced by the largest companies, offering a glimmer of hope that the rally will broaden.

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

“With the election and another rate cut in the rearview mirror, the question is whether bulls can continue to push the market to new highs,” said Chris Larkin of Morgan Stanley’s E*Trade. “Aside from possible profit-taking after such a strong rally, this week’s inflation data could determine whether the market will pare its gains.”

The S&P 500 rose 0.1%, reaching the 6,000 mark and on its way to its 51st record this year. The Nasdaq 100 lost 0.3%. The Dow Jones Industrial Average gained 0.8%.

Government bond futures were slightly lower as the money market was closed for a US holiday. The Bloomberg Dollar Spot Index rose 0.6%. Bitcoin options traders are already eyeing a milestone price of $100,000 for the cryptocurrency after it rose to a new all-time high on hopes of a more crypto-friendly administration.

Oil continued its decline as the soft demand outlook in China continued to plague the market.

According to the trading desk of JPMorgan Chase & Co. the stock market could rise more strongly at the end of the year after Trump’s victory in the presidential election than when he won the US presidency eight years ago.

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

The “animal spirits” unleashed by President-elect Trump’s economic policies will push the S&P 500 to 10,000 by the end of the decade, according to veteran strategist Ed Yardeni.

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

“Equity investors are also excited about the regime change to a more pro-business administration that promotes tax cuts and deregulation,” he wrote in a note on Monday.

U.S. stocks are looking a bit tense from a valuation, positioning and sentiment perspective, said Lori Calvasina of RBC Capital Markets.

She says valuations of the S&P 500 and Russell 2000 index have not yet peaked, but notes there is much less room to expand in the future.

The sustainability of the stock rally after victory in the US elections will depend on the behavior of the bond market, strategists at JPMorgan Chase & Co said. led by Mislav Matejka. Returns approaching 5% could be harder for risky assets to stomach, they said.

Corporate earnings are expected to be one of the biggest drivers of U.S. stocks as investor attention returns to economic growth after the election.

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

Some of the major moves in the markets:

This story was produced with the help of Bloomberg Automation.

This article was generated from an automated feed from a news agency without any changes to the text.