Small caps rally as Magnificent 7 stocks roll over in market rotation

Investors leaned on Wednesday because the Federal Reserve will reduce interest rates from September and possibly increase consumer expenditures and probably increased consumer expenditures.

Small -focused Russell 2000 It won about 2% in the session. Compared, wide S&P 500 Only 0.3%, which was kept by large technology stocks, was added.

The CNBC Magnificent 7 index, which monitors the seven megacap technology company, fell by 0.4%, although it reached the highest level of 52 weeks at some point of the session. Meta And Microsoft Each one dropped more than 1%and directed the slide.

“If the FED reduces the rates in September, the founder of the Blue Chip Trend report, which is called” speed cutting “game to small caps, said,” If the FED reduces rates in September, these small caps will be of great benefit to the economy and financially. ” He said.

Among the largest percentage earnings in small caps on Wednesday Bones And HillenbrandIt climbed more than 17% and more than 12% respectively. Dream Finding Houses 13 %Added Jack in the box He won 12 %.

With the earnings of Wednesday, Russell 2000 has added about 5% this week for the best week since November.

Traders are waiting for ratio cuts

The rally comes because investors are sure that the FED will reduce rates at the next policy meeting on September 16-17. Lower rates provide benefit to small companies that rely on the capital that has been borrowed to finance their operations, stocks or expansion plans.

Interest rate -term processors are pricing by approximately 100% of the probability of lowering the existing 4.35 to 4.50% range at the September meeting of the Central Bank’s FED funds, depending on the prices of 30 -day term transactions on CME. Fedwatch tool. This is less than 60% a month ago.

An increasing economic and political sound choir is forced to cut for ratio interruptions, especially after the weaker business growth than expected in July, a downward revision in the labor market growth in May and June, and the consumer inflation report that shows a cooler title of this week than expected. The FED has kept the proportions constant since last December due to questions surrounding the impact of President Donald Trump’s tariffs on inflation.

However, the Fed meeting in July showed the sections that central bankers see as the best way to the future monetary policy and voted against the two members of the Federal Open Market Committee. Fed Governor Adriana Kugler after resigning at the beginning of this month Trump, the economic advisor to fill the gap, said he would nominate Stephen Miran.

In recent months, Trump and his allies have frequently attacked Jerome Powell in recent months through the Central Bank’s ratio policy and called on the committee to facilitate the monetary policy. The President also implies Powell’s firing and threatened to allow a case that focused on the cost of the renewal of the Fed’s headquarters on Tuesday.

Treasury Secretary Scott Bessent said Bloomberg to Bloomberg on Wednesday.

“I think we can enter a series of ratio deductions here, starting with 50 basic points in September, one basic point is equal to 1/100 percent or 0.01%.

Despite the movement of Wednesday, there is a long way to capture small caps of stock market leaders. Since the introduction of the Chatgpt artificial intelligence application at the end of 2022, the Russell 2000 index has progressed less than 26%, the S&P 500 increased by 64% in the same range.

– Lisa Kailai Han from CNBC contributed to this report.