The Federal Reserve laid out an ideal scenario for investors on Wednesday.
Inflation is falling faster than initially thought. More interest rate cuts than previously expected are on the horizon. And the economy, while cooling from its too-hot pace, is still growing.
In other words, a soft landing is in sight, and investors have taken that to mean it’s time to go fishing in stocks that had previously been hammered by fears of higher interest rates.
The interest rate sensitive Real Estate sector is leading the market action on Thursday, rising more than 2.5%. The Russell 2000 (^RUT), which had reversed all of its post-pandemic gains earlier this year over fears of higher rates, is now up more than 11% in the last month alone.
The S&P regional bank index (KRE) has risen more than 20% over the past the month, including a nearly 5% gain on Thursday. Cathie Wood’s flagship Ark Innovation ETF (ARKK) is up north of 3% on Thursday alone.
Many of those areas of the market have already surged through November amid stocks’ best month since 2022, but now as the path to rate cuts has become even more clear, they’re keeping momentum into December too.
Powell’s comments on Wednesday “took the lid off the market’s concerns,” CFRA’s chief investment strategist Sam Stovall told Yahoo Finance Live. And now, Stovall says, the market “has further to run.”
The moves have brought the major averages near record highs. The Dow Jones Industrial Average (^DJI) gained nearly 500 points on Wednesday, breaching 37,000 for the first time. The S&P 500 (^GSPC) is back above 4,700 and closing in on its January 2022 record high of 4,796.
And within the indexes, single-stock moves have stood out for companies that have struggled throughout 2023. Shares of Bank of America (BAC) and Goldman Sachs (GS) had both been down double digits this year at the end of October. Now they’re in the green for 2023 as shares in both major banks popped about 5% on Thursday alone.
“Not surprisingly, Financials and Real Estate have been on the top because those are the ones that had been pressured the most because of the higher rates,” Stovall said.
The moves fall in line with what some of Wall Street’s most bullish strategists had flagged over the past month in 2024 outlooks.
BMO’s Brian Belski placed Financials as an Overweight amid his call for the S&P 500 to hit 5,100 in 2024.
“There is no denying that most institutional and global investors are very underexposed and have been overemphasizing the negative ‘what-ifs,'” Belski wrote.
The “what-ifs” include things like credit blowups, real estate meltdowns, expansive loan losses, and unmanageable consumer debt, but Belski said that they all seem “well telegraphed and well-managed by companies” and that the “sector is well-positioned and is poised to outperform and thrive.”
Thursday’s market action has spanned beyond standard sector action too.
A quick look at Yahoo Finance’s trending tickers page shows some of the most popular names on the website amid the current market rally are 2021 favorites like Carvana (CVNA), Plug Power (PLUG), and Lucid (LCID).
All of those stocks are well off their 2021 highs. But amid the Fed euphoria, they’re catching a bid on Thursday.