NEW YORK (AP) — Suddenly, smaller stocks seem to be making bigger noise on Wall Street.
After getting trounced by their larger rivals for years, some of the smallest stocks on Wall Street have shown much more life recently. Hopes for coming cuts to interest rates have pushed investors to look at smaller stocks through a different lens.
Smaller companies, which often carry heavy debt burdens, can feel more relief from lower borrowing costs than huge multinationals. Plus, critics said the Big Tech stocks that had been carrying the market for years were looking expensive after their meteoric rises.
The small stocks in the Russell 2000 index leaped a stunning 11.5% over five days, beginning on July 11. The surge looked even more eye-popping when compared with the tepid gain of 1.6% for the big stocks in the S&P 500 over the same span. Investors pumped $9.9 billion into funds focused on small U.S. stocks last week, the largest amount since 2007, according to strategists at Deutsche Bank.
They were all encouraging signals to analysts, who say a market with many stocks rising is healthier than one dependent on just a handful of stars.
If this all sounds familiar, it should. Hope for a broadening out of the market has sprung up periodically on Wall Street, including late last year. Each time, it ended up fizzling, and Big Tech resumed its dominance.
Of course, this time looks different in some ways. Some of the boost for small stocks may have come from rising expectations for a Republican sweep in November's elections, following President Joe Biden's disastrous debate performance last month. That pushed up U.S. stocks seen as benefiting from a White House that could be hostile to international trade, among other things.
Traders are also thinking cuts to interest rates are much more imminent than before, with expectations recently running at 95% confidence that the Fed will make a move as soon as September, according to data from CME Group
But some professional investors still aren’t fully convinced yet.
“Fade the chase in small caps, which is likely unsustainable,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.
She points to how 60% of the companies in the small-cap index struggle with profitability, in part because private-equity firms have already taken many money-making ones out of the stock market. Smaller stocks also tend to be more dependent on spending by consumers than larger companies, and consumers at the lower end of the income spectrum are already showing the strain of still-high prices.
Cuts to interest rates do look more likely after Federal Reserve officials talked about the danger of keeping rates too high for too long. But the Fed may not pull rates down as quickly or as deeply as it has in past cycles if inflation stays higher for longer, as some investors suspect.
Small stocks, which have struggled through five quarters of shrinking earnings due to higher rates, also are less likely to get a boost in profits delivered by the artificial-intelligence wave sweeping the economy, according to strategists at BlackRock Investment Institute.
President Donald Trump said he has decided to lower his combined tariff rates on imports of Chinese goods to 47% after talks with Chinese leader Xi Jinping on curbing fentanyl trafficking.
The Federal Reserve cut its key interest rate Wednesday for a second time this year as it seeks to shore up economic growth and hiring even as inflation stays elevated. The move comes amid a fraught time for the central bank, with hiring sluggish and yet inflation stuck above the Fed’s 2% target. Compounding its challenges, the central bank is navigating without much of the economic data it typically relies on from the government. The Fed has signaled it may reduce its key rate again in December but the data drought raises the uncertainty around its next moves. Fed Chair Jerome Powell told reporters that there were “strongly differing views” at the central bank's policy meeting about to proceed going forward.
The Federal Reserve will almost certainly cut its key interest rate on Wednesday and could signal it expects another cut in December as the central bank seeks to bolster hiring. A cut Wednesday would be the second this year and could benefit consumers by bringing down borrowing costs for mortgages and auto loans. Since Fed chair Jerome Powell strongly signaled in late August that rate cuts were likely this year, the average 30-year mortgage rate has fallen to about 6.2% from 6.6%. Still, the Fed is navigating an unusual period for the U.S. economy and its future moves are harder to anticipate than is typically the case.
Stocks are rallying toward more records ahead of a week packed with potentially market-moving events. The S&P 500 rose 1% Monday. The Dow Jones Industrial Average added 224 points, and the Nasdaq composite jumped 1.7%. Stocks also climbed in Asia ahead of a meeting on Thursday between the heads of the United States and China. The hope is that the talks could clear rising tensions between the world’s two largest economies. This upcoming week will feature profit reports from some of Wall Street's most influential companies and a meeting by the Federal Reserve on interest rates. Gold fell back toward $4,000 per ounce.
U.S. and Chinese officials say a trade deal between the world’s two largest economies is drawing closer. The sides have reached an initial consensus for President Donald Trump and Chinese leader Xi Jinping to aim to finalize during their high-stakes meeting Thursday in South Korea. Any agreement would be a relief to international markets. Trump's treasury secretary says discussions with China yielded preliminary agreements to stop the precursor chemicals for fentanyl from coming into the United States. Scott Bessent also says Beijing would make “substantial” purchases of soybean and other agricultural products while putting off export controls on rare earth elements needed for advanced technologies.
Some seniors say the Social Security Administration's cost-of-living adjustment won’t help much in their ability to pay for their daily expenses. The agency announced Friday the annual cost-of-living adjustment will go up by 2.8% in 2026, translating to an average increase of more than $56 for retirees every month. Eighty-year-old Florence, South Carolina, resident Linda Deas says it does not match the current "affordability crisis.” The benefits increase will go into effect for Social Security recipients beginning in January. Friday’s announcement was meant to be made last week but was delayed because of the federal government shutdown. Recipients got a 2.5% COLA boost in 2025 and a 3.2% increase in 2024.
