As is well known, large technology stocks have led the rise of US stocks for the majority of this year. However, in this month's surge in the US stock market, other stocks in the market are also following suit.
The corners of the US stock market that have been suppressed for some years are now leading the market's rebound. This round of upward momentum has expanded the cumulative increase in US stocks to 19% this year, and has risen by 3.3% since mid November. Some of the industries with the largest gains this month include those that were previously heavily hit by interest rate hikes and recession concerns.
These recent developments reflect an increasingly optimistic belief that the Federal Reserve will have the potential to lead the US economy to a soft landing - that is, while inflation falls back to the 2% target, the economy can avoid falling into recession.
The Federal Reserve hinted in early November that it is likely to have completed this year's interest rate hike, and since then, the benchmark 10-year US Treasury yield has continued to decline from a 16-year high, while US stocks have started to rebound along the way. The October CPI data released by the US Department of Labor on November 14th provided investors with a reassurance. The data showed that the US inflation rate fell to 3.2% beyond expectations, further stimulating the upward momentum of the US stock and bond market.
(Comparison of gains and losses of 11 S&P 500 stocks since November 14th)
Here are some leading sectors that have led the upward trend of the US stock market, as summarized by industry insiders. Investors who have missed out on the previous sharp rise may want to take a look and see if there are still opportunities to catch a ride at the moment:
Small cap stocks
Small cap stocks have consistently lagged behind large cap stocks this year, but in this month's rebound, the gap between the two is narrowing.
The Russell 2000 index, mainly composed of small cap stocks, has risen by 5.9% since November 14th, outperforming the overall market. Due to the fact that the majority of funds for small cap stocks typically come from the United States, improvements in the economic situation typically boost their stock prices.
The prospect of the Federal Reserve cutting interest rates next year also helps small cap stocks. Higher interest rates will drive up borrowing costs and often have a greater impact on small companies.
Deutsche Bank's analysis of futures contracts for the week ending November 14th shows that asset managers and hedge funds are betting on a sustained rise in small cap stocks in the near future, turning net bullish on the small cap index for the first time in months. So far this year, the Russell 2000 index has only risen by about 3%.
Bank shares
Bank stocks, which were heavily hit in the first half of this year, are now joining the market's rebound.
Since the release of the US October CPI report in mid month, the KBW Nasdaq Banking Index has risen by a cumulative 6.2%, narrowing the decline for the year to 18%. Earlier this year, bank stocks were hit by rising interest rates - forcing banks to pay more deposit interest while putting pressure on the value of their bond investment portfolios.
However, these bearish factors are currently weakening. "All the concerns about unrealized losses in bank bond investment portfolios are gradually disappearing," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions
A healthy economy and lower interest rates will also encourage people to take out loans to buy houses, cars, and other large commodities, and bank transaction income may also rebound as a result.
Dow Jones market data shows that in the week ending November 17th, SPDR Financial Select ETFs, including banking stocks, recorded the largest weekly net inflow of funds since mid July.
Cyclical stock
The prospect of economic growth is also helping to boost a range of industries, including real estate and manufacturing. Some cyclical stocks (often developing in sync with the economy) are rising in sync with the hope of a soft landing in the economy.
Since November 14th, the real estate and raw materials sectors of the S&P 500 index have risen by 6.4% and 4.9% respectively.
Dow Jones market data shows that the number of rising stocks within these sectors is also improving: last Friday, the proportion of stocks in these sectors closing above the 50 day moving average rose to at least 72%.
Transportation shares
The Dow Jones Transportation Average, which tracks the top 20 largest airlines, highways, railways, and freight companies in the United States, has risen by 4.9% since mid November and expanded to 13% for the year.
Among them, the express delivery giant United Parcel Service Company, railway operator United Pacific Company, and shipping company Meisen Steamship all saw a stock price increase of at least 6% during this period.
Investors expect that the prospect of an economic soft landing will boost people's demand for commodities and promote the transportation of raw materials. Recently, the decline in oil prices is also helping transportation stocks.
Speculative stocks
The possibility of the Federal Reserve to cut interest rates next year is also injecting new vitality into some speculative stocks that soared during the COVID-19 epidemic.
Since the release of the CPI report earlier this month, the flagship fund of Wall Street's "female stock god" Cathy Wood, Ark Innovation Fund, has surged by 12%, online used car retailer Carvana has risen by 9.6%, and sports betting app DraftKings has risen by 9.6%.
Of course, although these stocks have performed better than the overall market this year, they are still far below the record high they set during the pandemic.
These speculative stocks typically suffer from high interest rates, as higher interest rates give investors more choices and lower risks to achieve high returns. A decrease in interest rates will have the opposite effect.