Stocks ran to record highs on Tuesday, while small caps popped 3% on hopes of a Fed rate cut. The Daily Breakdown looks deeper.
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What’s Happening?
Record highs
The S&P 500 and Nasdaq hit record highs on Tuesday after a lower-than-expected inflation report. That report is a bit tricky, though. While the headline number came in below economists’ forecasts, core CPI was above expectations — and both measures inched higher, reaching their highest levels since Q1.
So why the record highs? The mild increase in inflation isn’t enough to offset the more concerning deceleration we’re seeing in the labor market. As a result, investors are feeling more confident in a rate cut from the Fed next month. That’s why the Russell 2000 jumped 3% yesterday (more on small caps in a moment).
ETH
In the crypto world, Ethereum continues to surge. Last week, it was on breakout watch to clear $4,000. This morning, it hit $4,700. While Bitcoin, Ripple, Stellar, and other crypto assets are inching higher, they’re taking the stairs — ETH is on the elevator. Now, bulls want to know if and when it can take out its record high near $4,868.
Morning Movers
Cava and CoreWeave aren’t having the earnings reactions investors were hoping for, down more than 20% and 10%, respectively. Cava disappointed with its revenue and same-store sales results, while CoreWeave’s shrinking margins and heavy stock-based compensation outweighed its better-than-expected revenue growth and strong full-year outlook.
Global-E Online is also in focus, with shares up about 10% in pre-market trading after better-than-expected results. If those gains hold into the open, the stock will hit its highest level since mid-May.
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The Setup — Russell 2000 (IWM)
The IWM ETF erupted yesterday, rallying about 3% as hopes for lower interest rates fuel bullish sentiment. Lower rates are viewed as more impactful for smaller companies, as these companies generally do not have the cash flow or balance sheet power as much larger firms, so lower rates have a more positive impact on their business.
With Tuesday’s surge, the IWM is now up about 2.5% so far on the year. Bulls are hopeful that this group can maintain its recent momentum and continue to power higher — particularly as it’s lagging the other major US indices so far this year. However, if worries over the economy grow or if rate-cut hopes are dashed, small caps could come back under pressure.
In the short-term, bulls might keep an eye on the $225 area, which had been short-term resistance until Tuesday’s rally.
Options
Options could be an alternative for investors who want exposure to IWM, but are nervous to get long the stock. Remember the risk for options buyers is tied to the premium paid for the option — and losing the premium is the full risk.
Bulls can utilize calls or call spreads to speculate on further upside, while bears can use puts or put spreads to speculate on the gains fizzling out and IWM rolling over.
For those looking to learn more about options, consider visiting the eToro Academy.
What Wall Street’s Watching
Meta hit a record high on Tuesday, climbing over 3% on the day. Last week, shares jumped more than 11% in a single session after better-than-expected earnings. Since then, the stock had been consolidating those gains before moving higher on Tuesday. Dig into the fundamentals for Meta.
Crude oil prices now hover near a two-month low. While consumers are likely cheering on the decline, energy bulls aren’t happy about it. That’s as the USO ETF remains under pressure and as energy stocks lack traction, with the XLE ETF now down slightly on the year.
While Nvidia and Advanced Micro Devices have received a lot of the semiconductor attention lately, Broadcom is in focus this morning as it nears a $1.5 trillion market cap. Shares have rallied in 14 of the last 16 weeks as AVGO bulls look for more gains. Check out the chart for AVGO.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.