Rate-Cut Hopes Are Kickstarting a Shift
Indeed, odds for a September rate cut jumped to 95% today.
So – that means stocks are soaring now, right?
Well, it’s a bit more complicated than that. Some stocks are soaring. Others are not.
Here’s why.
Thus far, the stock market rally of 2024 has been exceptionally narrow due to a lack of investor confidence about the go-forward path on inflation, interest rates and the economy. Therefore, investors have piled into red-hot AI stocks – driving the market averages up – while ignoring pretty much everything else.
But now investors are finally seeing the light at the end of the tunnel, if you will. And this narrow market rally is “broadening.”
After today’s soft inflation report, Wall Street is finally convinced that inflation will fall to 2%, the Fed will cut interest rates and the currently hobbled U.S. economy will improve in the coming months.
As a result, investors are starting to feel like they don’t have to hunker down exclusively in Big Tech and, instead, can start placing bets on other stocks in the market.
That’s why, as of this writing, the ‘Magnificent 7’ tech stocks are down more than 3% today, with AI favorite Nvidia (NVDA) down over 5%. At the same time, the small-cap Russell 2000 index is having its best day of the year, rallying nearly 3.5%.
This shift is what we’re calling the “Great Broadening of 2024.”