Tech Stocks And Small-Caps Surge As Fed Sticks To Dovish Message

Hi Everyone,

The stock market finished higher following a clearly bullish Fed day, with strong tech earnings and the promise of more monetary and fiscal stimulus fueling the rally. The Dow was up 160, or 0.6%, to 26,540, the Nasdaq gained 141, or 1.4%, to 10,543, while the S&P 500 rose by 40, or 1.2%, to 3,258. Decliners outnumbered advancing issues by an almost 4-to-1 ratio on the NYSE, where volume was slightly below average.

Traders said that today’s session was a huge confidence-booster for bulls as a lot of risk measures hit new recovery lows. As one trader explained, “The most-shorted issues surged higher today, while the Volatility Index (VIX) closed at its lowest level since late-February. It seems that investors are still hungry for risk despite the high level of economic uncertainty.”

The highly-anticipated anti-trust hearing of the leaders of the mega-tech companies will likely conclude this evening, but even without a major regulatory shock, the tech sector is set to be very active tomorrow, as it will be the single busiest day of this earnings season. Apple (AAPL), Amazon (AMZN), and Google parent Alphabet (GOOG) each release their second-quarter results, and another round of bullish tech surprises could be enough to jump-start the next leg higher in the post-crash rally. Procter & Gamble (PG), Mastercard (MA), and Eli Lilly (LLY) will report as well, so a lot of sectors could be in for a volatile end of the week.

The Fed left its benchmark rate unchanged today, as was widely expected, reiterating that it will keep interest rates low “until the economy weathered the storm”, while also confirming the schedule of its quantitative easing program. The Central Bank already announced the extension of its emergency lending programs yesterday, and Chairman Jerome Powell once again stressed that the economy would face strong headwinds in the second half of the year. Mr. Powell’s dovish words mean that the Fed will be ready to support growth with further measures if needed, which is reassuring for equity bulls, although the dollar could remain under pressure in the coming months.

After holding up relatively well yesterday, small-caps had a very strong session, confirming the bullish move at the level of the major indices. The Fed’s dovish stance, together with the extension of its lending program should support smaller companies in the post-COVID world, and thanks to the positive development, the Russell 2000 closed at its highest level in seven weeks today. Weak participation has plagued the recovery rally for several weeks now, so should the Russell gather bullish momentum, the consolidation period could finally be over.

As always, have a great evening and stay tuned!!!

Joe

Skills

Posted on

July 29, 2020

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