Wall Street Set To Extend Gains Amid Rate Cut Hopes, Bond Yields Slip: Analyst Says Market On Cusp To Shift To Value Stocks

U.S. stocks are stubbornly holding onto their upward momentum, as evidenced by the gains for the index futures early Tuesday. The small-cap rally reflects market hopes that the Fed is getting closer to interest-rate cuts. Bond yields are slipping back amid the expectations. San Francisco Federal Reserve President Mary Daly, who spoke after the market close on Monday, said confidence in inflation trending lower is increasing but she remained non-committal on the timing of the first rate cut in the current monetary policy cycle.

Traders may also react to the earning news flow and the retail sales report for June, given the latter’s implications for the health of consumer spending – a key growth engine.

Cues From Last Session:

Wall Street ended Monday’s session higher, with traders reacting to positive earnings and dovish comments from Federal Reserve Chair Jerome Powell. The major averages opened on a mixed note but moved uniformly higher after a report showed that the New York region’s manufacturing activity contracted roughly in line with expectations. Although the indices gave back some gains during the mid-session amid Powell’s speech, they held onto the gains.

Financial, energy and industrial stocks led the advance, while utility and consumer staples served as drags.

The S&P 500 Index touched an intraday high, although finishing just shy of its closing record. The 30-stock Dow Industrials clocked intraday and closing records.

The stalwarts were small-cap stocks, with the Russell 2,000 Index finishing at its highest level since January 2022.

Fundstrat's Head of Research Tom Lee said in a CNBC interview that the rally seen in the small-cap space is expected to accelerate further. He expects another 40% upside for small-caps over the next 10 weeks. This time around, institutions are holding a larger short position in small caps and these stocks are even more oversold, Lee said. The median price-earnings multiple of small-caps is now 10 times the estimated earnings for 2025, or even lower, he added.

Wharton Professor and Senior Economist to WisdomTree Jeremy Siegel said in his recent weekly commentary that for a small-cap rally to last, earnings growth in these stocks will have to pick up.

“While there are mixed signals from the various economic data points, the overall trajectory suggests a market on the cusp of a shift of value stocks regaining prominence, driven by easing monetary policies and a broadening of market participation,” he said.

Upcoming Economic Data:

• The Commerce Department is scheduled to release its retail sales report for June at 8:30 a.m. EDT. Economists, on average, expect retail sales to decline 0.4% month-over-month, reversing all of the 0.1% gain in May. Stripping of the volatile autos component, retail sales may have grown 0.1% compared to May’s 0.1% drop.
• The Labor Department’s import and export prices report is due at 8:30 a.m. Import prices may have fallen 0.2% month-over-month in June, slower than the 0.4% drop in May.
• The Commerce Department will also release the business inventories report at 10 a.m. EDT, with the consensus pointing to a 0.5% month-over-month climb for May following a 0.3% increase in April.
• The National Association of Home Builders’ housing market index, which reflects homebuilder confidence, is expected to rise slightly from 43 in June to 44 in July. The report is scheduled for 10 a.m. EDT.
• Fed Governor Adriana Kugler is due to speak at 2:45 p.m. EDT.

See also: Best Futures Trading Software

Stocks In Focus:

• Trump Media & Technology Group Corp. DJT fell about 8% in premarket after Monday’s over 31% rally.
• Match Group, Inc. MTCH rose nearly 7.5% amid reports of interest from activist investor Starboard.
• Bank of America Corporation BAC, Morgan Stanley MS and UnitedHealth Group Incorporated UNH are among the noteworthy earnings due ahead of the market open, while J.B. Hunt Transport Services, Inc. JBHT will report after the close.

Commodities, Bonds And Global Equity Markets:

Crude oil futures fell sharply, while gold futures rose moderately. The 10-year Treasury yield retreated by 4.5 points to 4.182%. Bitcoin BTC/USD gained ground, trading at a $63.5K level.

The Asian markets closed mixed despite the positive lead from Wall Street overnight, while European stocks retreated in early trading.

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