Investors expected the Fed to cut rates, so it was not surprising to hear the news that they did. What was surprising, however, was that after investors digested the news, they began steadily buying shares right up to the close. The S&P 500 (SPX) and the Nasdaq 100 (NDX) both closed at all-time highs as investors demonstrated their lack of fear in the face of foreign and domestic political pressures.
The chart below shows, in 15-minute time intervals, how State Street's SPDR S&P 500 ETF (SPY) traded in a range for about 30 minutes as investors absorbed the information, but then began trudging higher as investors showed their disposition to take on new risk and buy more stocks. This confirms signals that had been given in the market over the past two days showing that investors were more willing to seek investment opportunity and could begin a new upward trend in stock prices.
Small-Cap Stocks Gain Steam
One of the earlier indications of investor sentiment has been the surge in small-cap stocks, as shown by the comparison in the chart below. Comparing various exchange-traded funds including iShares' Russell 2000 index fund (IWM), Microcap index fund (IWC), Invesco's Nasdaq 100 tracking fund (QQQ), State Street's Midcap index fund (MDY), S&P 500 ETF, and Dow Jones Industrial index fund (DIA), a shift of dollars from larger-cap stocks towards smaller-cap stocks appears to be underway. This is clearly indicative of an attitude among investors that now is the time to take on new risk.
NovoCure May Attract New Investor Interest
Among the 2,000 stocks Russell Investments tracks that make up the eponymous index of small-cap stocks, the second largest single holding is NovoCure Limited (NVCR). This company's shares doubled in value and then fell to half that gain in just the past six months (see chart below). Vastly outpacing the rest of the index, the company's prospects may be much improved in an environment where investors' appetite for riskier opportunities has increased.
The Bottom Line
Stocks hit new all-time highs at the close of the session after Fed officials announced another quarter-point rate cut. Small-cap stocks are on pace to outperform other stock-related asset classes. Among such stocks, NovoCure has had a fantastic run, but its deep pullback may spell opportunity for new investors hungry for unusual gains.
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