Analysts described the rally as a classic recovery market fueled by continued optimism about the state of the economy.All three indexes fell on Wednesday after several big technology companies reported disappointing earnings.But Jeffrey Roach, chief economist at LPL Financial, said investors now appear to be taking more risks as a “soft landing” becomes more likely.
“We have an economy with low unemployment, wages rising, inflation slowing and the Fed is about to cut interest rates,” Roach said.
The rebound came on the heels of favorable inflation data that could increase the likelihood of the Federal Reserve cutting interest rates in September. Favorable inflation indicators Growth in the 12 months to June slowed to 2.5%, providing further evidence that the central bank’s interest rate hike campaign is working. A better-than-expected reading on gross domestic product (GDP) was released on Thursday. The U.S. economy grew at a robust 2.8% annual rate. The second quarter is expected to complete two years of robust expansion.
Leading the way on Friday was manufacturer 3M, whose shares soared 21 percent after the company reported results that well beat analysts’ expectations.
Meanwhile, telecommunications company Charter Communications Inc. reported revenue that beat Wall Street expectations, sending its shares up about 15 percent.
Strengthening fundamentals are fueling a larger stock market upside in 2024, analysts say. Earlier this year, the stock market rally was dominated by a handful of big technology companies known as the “Magnificent Seven,” which benefited from hype around artificial intelligence technology.
The rally now appears to be spreading across industries, said Michael Farr of Washington-based investment firm Farr, Miller & Washington.The Russell 3000 index, which measures small, economically vulnerable stocks, is up 14% this year, outperforming the Dow Jones Industrial Average.
“Other things besides AI are being acquired, and there’s been a shift from the Magnificent Six and Seven to blue chip stocks,” Farr said.
