GDP, Big-Cap Strength Could Be Masking Broader Weakness
Under the surface, the price action heading into the Christmas break was weak, with small caps lagging.
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It was a solid day for the senior indices, with the S&P 500 gaining 0.46% and the Nasdaq 100 (QQQ) rising 0.48%, but it was another case of big-cap technology covering up broader-market weakness.
Despite the index strength, only 38% of stocks produced gains. There was some extreme momentum in precious metals, but it was primarily Nvidia (NVDA) , Alphabet (GOOGL) and Broadcom (AVGO) that pushed the index higher. The Russel 2000 lost 0.5% but did not fill the Monday morning gap.
The strength in the S&P 500 and big-cap technology helped produce a positive mood, but the economic news on Tuesday morning was a little problematic. GDP was much better than expected, but inflation was also higher, pushing the odds of a January rate cut down to just 13%. Small caps tend to be more sensitive to interest rates, which is probably the main reason that the Russell 2000 lagged so much.
However, the robust GDP is a pleasant surprise and bodes well for the year ahead, especially if inflation doesn't spike.
Shortly before the close, Treasury Secretary Scott Bessent posted on X: "The private economy is booming under (President Trump). Real GDP growth excluding government is up 4.7% at an annualized rate over the last two quarters. This is the exact opposite of what happened under Biden, when government growth contributed to historic inflation and depressed living standards. The current Trump-led surge points to a significant increase in hiring in the months ahead and the large paychecks that will inevitably accompany these jobs."
We have a half-day session on Wednesday, and it is going to be thin, but market players seem to be positioning themselves for a possible Santa Claus rally that officially starts this Friday, the day after Christmas.
The risk of random action is very high in thin trading around the holidays, so be careful and stay flexible.
Have a good evening. I'll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
