S&P500 and Dow Jones: Small-Caps Surge as Market Realigns – Analysis

Market Rotation Continues as S&P 500 and Nasdaq Remain Flat

The S&P 500 and Nasdaq Composite showed little movement on Friday, capping off a week characterized by market rotation. Both indices hovered near flat, while the Dow Jones Industrial Average retreated 0.5%, shedding 183 points.

Broad Market Performance

This week’s trading patterns revealed a shift in investor focus. The S&P 500 declined over 1%, heading for its worst week since April. The Nasdaq slipped nearly 3%, jeopardizing a six-week winning streak. In contrast, the Dow climbed more than 1%, and the Russell 2000, representing small-cap stocks, surged over 2% through Thursday’s close.

Sector Movements

The information technology and communication services sectors led the S&P 500’s decline. This shift away from megacap artificial intelligence beneficiaries explains the Nasdaq’s underperformance. Chris Verrone, head of technical and macro research at Strategas, noted that despite some momentum stocks taking a hit, “the breadth under the surface these last two weeks has been absolutely spectacular.”

Notable Stock Movements

American Express retreated over 2% following weaker-than-expected revenue, despite beating earnings per share estimates. Microsoft slipped 1.6% amid widespread tech outages. Comerica shed 9% after reporting lower net interest income compared to the previous year. On a positive note, SLB added 1.4% after surpassing earnings expectations, while Arm Holdings gained nearly 3% following an upgrade from Morgan Stanley.

Tech Sector Challenges

CrowdStrike tumbled more than 8% following a major information technology outage that impacted businesses globally. However, both the New York Stock Exchange and Nasdaq reported that trading remained unaffected.

Market Forecast

The current market rotation suggests a short-term bullish outlook for small-cap and value stocks. As investors diversify away from tech giants, sectors such as financials and energy may see increased interest. However, the tech sector’s volatility and the broader market’s mixed performance indicate potential challenges ahead. Traders should remain alert and consider adjusting their portfolios to capitalize on this shifting market trend.

E-mini Nasdaq-100 Index futures are edging higher with prices hovering just above a minor pivot at 19742.25 and the major 50-day moving average at 19610.16.

Trader reaction to the 19742.25 to 19610.16 retracement zone will determine the direction of the index on Friday.

A sustained move over 19742.25 will indicate the presence of  buyers. This could fuel an intraday short-covering rally.

A sustained move under 19610.16 will signal the presence of sellers. This could lead to an even steeper decline with 19178.375 the next major target.