In early October, markets were looking a bit grim. Interest rates were rising. There was talk they might stay high — maybe not forever but for a long time.
And stocks were falling. But stocks were just getting primed for a big-time fall rally. The first signal came on Oct. 23 when the 10-year Treasury yield hit 5.022% and then fell back by day's end.
Within a few trading days, the Standard & Poor's 500 Index (^IN) -) hit a short-term bottom at 4,104, then picked up 10 points by the close. The trigger had been pulled.
So in fits and spurts, a rally erupted, especially after the Federal Reserve signalled it likes where inflation is going (down) and can think about cutting interest rates. (Markets see the first cuts in the spring of 2024.)
The rally has now spread across the entire U.S. stock market, pulling up the downtrodden universe of small- and mid-cap stocks.
In fact, the Russell 2000 Index and S&P 600 Index have out-performed the major indexes that everyone follows. And ETFs associated with them have done better as well.
Related: With the Fed ready to ease, will stocks continue to rally in 2024?
Here are the numbers based on lows seen either on Oct. 26 or Oct. 27 and as of the Dec. 15 close.
- Russell 2000 Index ^RUT : up 21.5%. The iShares Russell 2000 exchange-traded fund (IWM) -), up 21.9%.
- The S&P 600 Index ^SML: up 21.2%. The SPDR Portfolio S&P 600 Small Cap ETF (SPSM) -): up 21.6%.
- S&P 400 Index ^SP400: up 18.2%. SPDR S&P Midcap 400 ETF (MDY) -): up 17.8%.
- S&P 500: up 15%. SPDR S&P 500 ETF SPY: up 14.7%.
- Dow Jones Industrial Average (^DJI) -): up 13.4%. SPDR Dow Jones Industrial Average ETF (DIA) -) up 15.3%.
- Nasdaq Composite Index (^COMPX) -): up 18.1%. Fidelity Nasdaq Composite Index ETF (^ONEQ.SO) -), up 18.3%.
- Nasdaq-100 index (^NDX) -): Up 18.2%. Invesco QQQ ETF (QQQ) -), 18.4%.
Admittedly, the Nasdaq-100 has had a great year, up 52% with just nine trading days to go. But remember: This is a rebound gain. The index fell 33% in 2022 in the midst of the worst year for stocks since the 2008 financial crisis.
The recent gains for the small- and-mid caps have been bigger than the large-cap indexes and funds in large part because Smart Money could smell bargains in that world. All thanks to armies of people attached to computers that could hit buy buttons at a moment's notice.
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Consider the seven so-called Magnificent Seven stocks are up an average of 19% in this time frame — very healthy gains. The bigger gainer in this time frame: Amazon (AMZN) -), up 26.7%.
The other Magnificent Seven stocks are Apple (AAPL) -), Google-parent Alphabet (GOOG) -), Meta Platforms (META) -), Microsoft (MSFT) -), Nvidia (NVDA) -) and Tesla (TSLA) -). Alphabet is the laggard right now, up JUST 10.3%.
The top 5 Russell 2000 stocks are up an average 158%. Among the leaders: ALX Oncology (ALXO) -), up 106%. The top 5 S&P 600 stocks are up an average 48%. The top five S&P 400 stocks have enjoyed average gains of 63%, led by AMC Networks (AMCX) -), up 85.5%.
Related: What falling interest rates mean for investing in bonds and CDs
Big stocks now looking vulnerable
In addition to the bargains that Smart Money beheld, the big caps have looked increasingly pricey of late, pushing the Dow, for example, to record highs and the S&P 500, Nasdaq and Nasdaq-100 indexes to 52-week highs.
So expensive have many of these stocks become that there are worries they are becoming vulnerable to selling bouts.
Microsoft, in fact, hit a 52-week closing high of $382.70 on Nov. 28 and is off 3.1% since.
The Russell 2000, by contrast, finished this past week still down 1.2% below its 52-week high and is still 19.3% below its all-time high in November 2021.
