When 2024 began investors and analysts were deeply concerned that the major indexes were showing big gains from a very narrow range of stocks.
Narrow range as in: tech, tech and more tech.
Monday brought a close to both September and the third quarter. So, it's time to see how stocks have moved around.
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For the year to date tech is still the leading market sector in the Standard & Poor's 500 Index, up 29.6%. But most of those gains were achieved in the first quarter. That's when stocks like Nvidia (NVDA) were soaring as investors had become enthralled with the idea and, they hoped, the promise of artificial intelligence.
With the Federal Reserve cutting interest rates, the broadening that hit U.S. stocks in the third quarter is likely to continue.
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Federal Reserve Chairman Jerome Powell in a Monday speech all but promised two more rate cuts in the 2024, probably 0.25 percentage point per cut. On Sept. 18, the Fed cut its key Federal Funds Rate to a range of 4.75% to 5%, its first rate since 2020.
That should pull down interest rates for everyone, with a 30-year mortgage rate dropping below 6% at some point.
There are two risks to the scenario: the port strike that erupted Monday night and the threat of broadening war in the Middle East.
The Dow Jones industrials, down as many as 315 points during the session, finished up 17 points at a record 42,330.15. The S&P 500 was up 24 points to a record 5,762.48.
The Nasdaq Composite index added 69.58 points to 18,189.17, about 2.5% below its July 10 record close of 18647.45.
Tech stocks take a breather
Nvidia was up 82% in Q1 alone and is still up 145.2%. But its third quarter was not one to write home about: The shares fell 1.7%. thanks in part to a 5% loss in July.
But the S&P 500 finished the quarter up 20.8% for the year to date. That was the biggest gain through the third quarter of any year since 1997.
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The third quarter overall was dominated by a huge interest in utilities stocks. The S&P 500's utilities sector was up 18.5% for the quarter and 6.4% in September. Real estate stocks jumped 16.3%, with a 2.8% gain in September.
What happened? Investors started to worry that tech stocks had become overbought — actually wildly overbought — and looked toward stocks that might benefit from lower interest rates.
Utilities Vistra (VST) , up 38.8%, and Constellation Energy CEG, up 32.2%, were the top S&P 500 performers in September. (They also stand to benefit from the buildout of infrastructure to power AI installations.)
The laggards: oil and gas producer APA (APA) , down 14.2%, and retailer Dollar Tree (DLTR) , down 16.8%.
Home Depot (HD) and Caterpillar (CAT) led the Dow, up 10% and 9.8%, respectively. Boeing (BA) , down 12.5%, and JP Morgan Chase, (JPM) , down 6.2% were the Dow laggards.
Recession worries grow, then ease in quarter
Plus, the economy was giving off noises it might be weakening into a recession. (The recession hasn't materialized and may not occur at all.)
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So, money was pulled from tech stocks and invested elsewhere, especially in stocks with low price-earnings multiples. And investors seemed to favor stocks with predictable dividends as interest rates started to fall ahead of the Fed's Sept. 18 decision to start cutting rates.
The S&P Technology Sector was up just 1.44% in the quarter and 2.45% in September. The quarterly performance was the third-worst of the 11 S&P 500 sectors, ahead of Communications Services and Energy, weighed down by falling oil prices.
Here are the results for the S&P 500 for September and the third quarter.
- Consumer Discretionary — Up 7.02% on month; 7.6% for quarter
- Utilities — Up 6.43% on month; 18.46% for quarter
- Communication Services — Up 4.53% on month; 1.4% for quarter
- Industrials — Up 3.27% on month; 11.15% for quarter
- Real Estate — Up 2.77% on month; 16.3% for quarter
- Information Technology — Up 2.45% on month; 1.44% for quarter
- Materials — Up 2.41% on month; 9.20% for quarter
- Consumer Staples — Up 0.69% on month; 8.28% for quarter
- Financials — Down 0.67% on month; up 10.2% for quarter
- Health Care — Down 1.82% on month; up 5.65% for quarter
- Energy — Down 2.79% on month; down 3.12% for quarter
Here are the year-to-date results:
- Information Technology — Up 29.63% year-to-date
- Communication Services — Up 27.88%
- Utilities — Up 24.45%
- Financials — Up 20.4%
- Industrials — Up 18.9%
- Consumer Staples — Up 16.46%
- Consumer Discretionary — Up 13.21%
- Health Care — Up 12.96%
- Materials — Up 12.62%
- Real Estate — Up 11.48%
- Energy — Up 5.69%
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