Stock rotation pushes small caps to three-year high: Market bullish

Stocks rose for the fifth consecutive session, Bitcoin topped $84,000 and the dollar was at a one-year high, as investors increasingly bet that those trades would benefit from President-elect Donald Trump’s agenda.

Economically sensitive stocks led gains, with the Russell 2000 index of smaller companies reaching its highest level since 2021. A closely watched gauge of banks climbed 2.8%. Most big tech companies declined, although Tesla Inc. jumped 7.8%. An equal-weight version of the S&P 500 – where Apple Inc. Weighing in on companies like Dollar Tree Inc. Is similar to – beat the US benchmark. This gauge is less influenced by the largest companies – providing a glimmer of hope that the rally will be broader.

US inflation probably moved sideways at best in October, highlighting the uneven path towards the Fed’s goal of reducing price pressures domestically. The core consumer price index, which excludes food and energy, due on Wednesday is likely to rise at a similar pace on a monthly and annual basis compared to September’s reading.

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

The S&P 500 was up 0.1%, reaching 6,000 points and heading for its 51st record this year. The Nasdaq 100 lost 0.3%. The Dow Jones Industrial Average rose 0.8%.

Treasury futures were slightly lower as cash markets were closed for the US holidays. The Bloomberg dollar spot index rose 0.6%. Bitcoin options traders are already eyeing a historic price of $100,000 for the cryptocurrency after reaching a new record on hopes of a more crypto-friendly administration.

Oil continued to fall due to soft demand scenario in China, which affected the market.

According to JPMorgan Chase & Co.’s trading desk, the stock market could end the year even higher after Trump’s presidential election victory, as he did when he won the US presidency eight years ago.

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

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

His extremely bullish forecast, 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 raised the year-end target 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.

According to Lori Calvasina at RBC Capital Markets, U.S. equities look slightly stretched from a valuation, position and sentiment perspective.

She says valuations haven’t yet peaked on either the S&P 500 or the Russell 2000 indexes, but notes there’s little room for further upside.

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

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

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

Some key movements in the markets:

This story was generated with the assistance of Bloomberg Automation.

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