On Wednesday, the Dow Jones Industrial Average climbed and reached a historic peak, while the other two major indexes on Wall Street also finished higher, managing to withstand declines in large tech stocks due to gains in small-cap equities and robust earnings from financial shares.
This marked the third occurrence in four sessions that the Dow achieved a record closing, surpassing 43,000 points once more and recovering from losses experienced in the prior session.
The S&P 500 was also close to achieving another closing record but ultimately fell short, rising by 27.21 points, or 0.47%, to finish at 5,842.47 points.
The Nasdaq Composite increased by 51.49 points, or 0.28%, closing at 18,367.08. The Dow Jones Industrial Average rose by 337.28 points, or 0.79%, to reach 43,077.70.
In a broadly positive atmosphere for Wall Street, financial stocks took the lead.
“I believe investors are shifting some funds away from the technology giants and into the major financial institutions,” stated Michael Kantrowitz, chief investment strategist at Piper Sandler.
He mentioned that this shift was logical as the current rate environment has become more favorable for bank profits, while significant optimism around artificial intelligence (AI) has already been factored into tech companies’ valuations.
Morgan Stanley achieved a record closing, soaring 6.5%, after reporting strong profits similar to JPMorgan Chase, thanks to a significant increase in investment banking revenue.
Larger regional banks, which typically rely less on investment banking, also saw gains. First Horizon increased by 4.1%, and U.S. Bancorp advanced 4.7% after releasing their third-quarter results.
The overall Banks index climbed by 1.2%, while the regional banks index rose by 1.5%.
Investors also shifted their attention to small-cap stocks, with a rotation from high-priced tech megacaps to more reasonably priced sectors.
The Russell 2000 index increased by 1.6%, and the S&P Small Cap 600 saw a gain of 1.4%. Both indices achieved their highest finishes since November 2021.
While recognizing some recent buying activity, Kantrowitz from Piper Sandler expressed skepticism about a broader rotation into small caps.
“I think there’s a tendency for people to diversify their portfolio exposure, but they continue to focus on similar fundamental qualities,” he noted, adding that investors are opting for high-quality small-caps without venturing into deep-value stocks that would typically attract interest in case of a full rotation.
Among the major tech stocks that declined, Apple fell 0.9% after reaching a record high in the previous session. Alphabet, Meta Platforms, and Microsoft all dropped between 0.2% and 1.6%.
Conversely, chip giant Nvidia defied the trend among megacaps, rising 3.1% after a nearly 5% drop in the prior session.
The gains from the so-called Magnificent Seven tech stocks have largely fueled Wall Street’s record-setting performances this year. However, with valuations increasingly stretched and a more positive economic forecast, investors have begun to seek out alternatives.
Four of the 11 S&P sectors achieved record closing highs: financials, utilities, materials, and industrials.
Utilities led the sector gains, surging 2%, with Dominion Energy’s 5.1% rise acting as a catalyst after it was among the power companies with which Amazon.com partnered to develop nuclear technology for powering data centers.
Piper Sandler’s Kantrowitz highlighted that utilities, being the second-best performing S&P sectors year-to-date, continue to show promise due to increased power demand driven by AI and favorable interest rates.
The economically sensitive Transport index surged by 1.9%, boosted by United Airlines’ best single-day performance in six months, increasing 12.4% after projecting better-than-anticipated fourth-quarter profits and unveiling a $1.5-billion share buyback plan on Tuesday.
Delta Air Lines and American Airlines also gained, advancing 6.8% and 7.1%, respectively.
Attention will now shift to upcoming corporate earnings throughout the week, along with significant economic data including September retail sales and industrial production figures due on Thursday.
Trading volume on U.S. exchanges reached 10.63 billion shares, compared to the 12.13 billion average for an entire session over the past 20 trading days.
