--- title: "Wall Street’s Great Rotation Resurfaces After GDP: Markets Wrap" description: "Wall Street traders betting the Federal Reserve will be able to engineer a soft landing spurred a rally in riskier corners of the market, with stocks rebounding after a selloff that jolted markets around the globe." type: "NewsArticle" publisher: "Daily Maverick" site: "https://www.dailymaverick.co.za" section: "Newsdeck" author: "Bloomberg" author_url: "https://www.dailymaverick.co.za/author/bloomberg/" canonical_url: "https://www.dailymaverick.co.za/article/2024-07-25-wall-streets-great-rotation-resurfaces-after-gdp-markets-wrap/" published: "2024-07-25T17:38:18" updated: "2024-07-25T17:38:19" lang: "en-ZA" word_count: 1118 --- # Wall Street’s Great Rotation Resurfaces After GDP: Markets Wrap > Wall Street traders betting the Federal Reserve will be able to engineer a soft landing spurred a rally in riskier corners of the market, with stocks rebounding after a selloff that jolted markets around the globe. By Bloomberg · Published 25 July 2024, 19:38 SAST · Updated 25 July 2024, 19:38 SAST ## Content Economically sensitive shares such as financial and industrial companies led gains on Thursday. Smaller firms extended this month’s surge to almost 10%, largely outpacing the group of tech megacaps. An equal-weighted version of the S&P 500 — where the likes of Nvidia Corp. carry the same heft as Dollar Tree Inc. — beat the US equity benchmark. That index is less sensitive to gains from the biggest companies — providing a glimpse of hope the rally will broaden out. Even though the pace of US growth picked up, the latest figures represented a moderation from last year. That bodes well for the Fed, which is trying to tame inflation without breaking the economy. The report suggested officials will be able to slash rates in September, bolstering the outlook for Corporate America. Many traders said the report was also a “sigh of relief” because it did not signal the Fed would rush to cut — as that could indicate concern about about a recession. “Goldilocks is getting stronger and the risk of stagflation is fading,” said [David Russell](https://usw2.nyl.as/t1/133/57tm32e24ucoaxsmi86i8ld59/0/d8e847580fc3e4246bc81b79234c3931544bbad80a391dbe2161e5bb57ce33ac) at TradeStation. “There’s not much ‘stag; and not much ‘flation’. This kind of GDP report is a potential tailwind for corporate earnings that keeps us on pace for lower rates going forward.” The S&P 500 rose to around 5,450. The Russell 2000 of small companies climbed 2%, while a gauge of the “Magnificent Seven” megacaps added only 0.2%. The yield on 10-year Treasuries declined six basis points to 4.23% To Chris Larkin at E\*Trade from Morgan Stanley, without any signs of an imminent recession from, the odds of a “July surprise” from the Fed next week didn’t get any better. Even though the pace of growth picked up from the first quarter, the figures still represent a moderation from last year. Consumer spending and broader economic activity have cooled under the weight of high interest rates, which is simultaneously helping to tame inflation gradually. “The US economy is much stronger than people realize and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief,” said Chris Zaccarelli at Independent Advisor Alliance. “The recent pullback in stocks will likely prove to be a buying opportunity.” While more volatility is to be expected – especially as we get closer to the election – and as long as the economy avoids a recession, the bull market will continue through 2024 and well into 2025, he says. ### Wall Street’s Reaction to GDP: - Matt Peron at Janus Henderson Investors: > GDP came in significantly stronger than anticipated, with most of the surprise coming from building inventories and a pickup in personal consumption. While this number can be subject to revisions, it does lend support to the soft-landing narrative which is our base case. Today’s report should provide some relief to stressed markets by showing that the second quarter was generally solid. However, we note that the economy does seem to be downshifting and that may cause continued volatility in the coming months. - Neil Birrell at Premier Miton Investors: > The US economy was flying in the second quarter, and GDP growth has blown estimates away. Even though inflation has eased a bit, it is still higher than many had hoped, and this cocktail will give the Fed a headache in advance of its meeting next week. It is likely we will see rate cut expectations wane and the volatility we are currently seeing in markets is unlikely to subside as a result of this strong data. - John Lynch at Comerica Wealth Management: > The stronger than expected data on GDP and inflation suggest the Fed must be wary, but is unlikely to alter market expectations for a September rate cut. > > Weak orders provide the Fed with further justification for a cut, and the S&P 500 may find some near-term support at current levels around the 50-day moving average. > > Yet today’s data should remind investors that while one or two cuts in coming months is warranted, an aggressive easing cycle next year is unlikely. - Bret Kenwell at eToro: > It was a reassuring sigh of relief to see a better-than-expected result and perhaps increases the odds that the Fed can achieve a soft landing after all. > > Personal consumption led the charge, which is critical in an economy where more than two-thirds of GDP is driven by the consumer. While there’s no question that the labor market has softened a bit over the last few months, the economy continues to hum along. As long as the labor market doesn’t experience too much stress, the US economy can continue to defy its critics and chug higher. > > Investors must remember that markets are forward looking — and there are several positives on the horizon. Earnings growth forecasts call for continued acceleration and the Fed is on the verge of its first rate cut of this cycle. - Jeff Roach at LPL Financial: > Growth rebounded from the weak numbers in Q1 but today’s release does not change expectations that the Fed will cut rates at least two times this year as inflation decelerates. ### Corporate Highlights: - [Royal Caribbean Cruises Ltd.](https://www.bloomberg.com/news/articles/2024-07-25/royal-caribbean-restarts-dividends-after-four-year-hiatus) became the first cruise operator to reinstate dividends as record demand put it on firmer financial footing. - [Chipotle Mexican Grill Inc.](https://www.bloomberg.com/news/articles/2024-07-24/chipotle-sales-beat-market-expectations-on-robust-diner-traffic)’s limited-time offers and speedy service helped it beat sales expectations, and the burrito chain says efforts to ensure generous serving sizes will keep them coming back. - [New York Community Bancorp](https://www.bloomberg.com/news/articles/2024-07-25/nycb-s-flagstar-to-sell-mortgage-servicing-unit-for-1-4-billion)’s Flagstar Bank unit agreed to sell its residential mortgage-servicing business to Mr. Cooper Group Inc. for about $1.4 billion. - [AbbVie Inc.](https://www.bloomberg.com/news/articles/2024-07-25/abbvie-sees-higher-profits-as-new-drugs-offset-humira-decline) lifted its 2024 profit projection as its top-selling anti-inflammatory drugs made up for the gradual decline of Humira, the blockbuster autoimmune treatment that has defined the company for more than a decade. - [Universal Music Group NV](https://www.bloomberg.com/news/articles/2024-07-25/universal-sinks-30-after-subscription-growth-misses-estimates) tumbled after its subscription and streaming revenue growth disappointed investors. Some of the main moves in markets: ### Stocks - The S&P 500 rose 0.4% as of 11:21 a.m. New York time - The Nasdaq 100 was little changed - The Dow Jones Industrial Average rose 0.7% - The Stoxx Europe 600 fell 0.7% - The MSCI World Index was little changed - The Russell 2000 Index rose 1.9% - Bloomberg Magnificent 7 Total Return Index rose 0.2% ### Currencies - The Bloomberg Dollar Spot Index was little changed - The euro rose 0.2% to $1.0860 - The British pound fell 0.2% to $1.2882 - The Japanese yen was little changed at 153.85 per dollar ### Cryptocurrencies - Bitcoin fell 1.8% to $64,830.06 - Ether fell 6.6% to $3,153.9 ### Bonds - The yield on 10-year Treasuries declined six basis points to 4.23% - Germany’s 10-year yield declined three basis points to 2.42% - Britain’s 10-year yield declined three basis points to 4.13% ### Commodities - West Texas Intermediate crude was little changed - Spot gold fell 1.4% to $2,364.64 an ounce