S&P 500, Dow Break All-Time Records as Small Caps Fill in for Mag 7
The market saw another solid day and some healthy rotation away from the Magnificent Seven names.
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Following some brief profit-taking on Tuesday morning, it was another solid day for the market. Breadth shifted from negative early in the session to 60% positive by the close, with over 300 stocks hitting new 52-week highs. While there wasn't quite as much speculative intensity as we saw on Monday, strength built nicely into the final bell.
Blue Chips and Big Rotation
The most significant positive of the day was a close at the highs, resulting in new all-time records for both the S&P 500 and the Dow Jones Industrial Average. The Dow officially closing above the 49,000 mark for the first time.
The "Magnificent Seven" (MAGS) lagged with a loss of 0.3%, but the Nasdaq 100 (QQQ) still managed to jump nearly 1% on the back of resurgent strength in semiconductors. Notably, data storage leaders Seagate (STX) and Western Digital (WDC) were the biggest gainers in the QQQ, surging 14% and 17%, respectively, as the market prices in a second wave of AI infrastructure demand.
Russell 2000 Takes the Lead
The Russell 2000 (IWM) jumped 1.3%, the most bullish development of the day. This move reflects a growing appetite for speculative stock picking. Crucially, the index is not yet at a stage where bears can claim it is "frothy" or overextended; the Russell 2000 has yet to even surpass its December highs, suggesting there is still plenty of room for a "catch-up" trade.
As the day progressed, there was a slight aroma of fear of missing out (FOMO) in the air. Even though the mighty Nvidia (NVDA) fizzled out after a strong start, it didn't seem to dampen the mood, as investors found plenty of other high-conviction names to buy. In fact, a strong argument can be made that the rotation out of the Magnificent Seven is a net positive, illustrating a healthy broadening of market action.
The Road Ahead
We have a steady stream of economic data coming over the next few days, culminating in the December payroll report this Friday, January 9. While that report could serve as a convenient excuse for some profit-taking, the bulls currently hold the momentum. It is highly likely that the market will remain "sticky" to the upside as we head into the heart of the month.
Have a good evening. I'll see you tomorrow.
At the time of publication, DePorre was long NVDA.
