Marketbites: Large-Cap Stocks Leading 2023 Gains
Portfolio Manager Commentary:
The Dow Jones Average fell on Tuesday as Wall Street considered the likelihood of Congress passing a tentative deal on raising the U.S. debt ceiling. President Joe Biden and House Majority Leader Kevin McCarthy reached an agreement to raise the debt ceiling and avoid a default over the weekend, with Congress set to vote on the legislation as early as Wednesday. Both Republican and Democratic support is needed for the proposed bill to pass.
The agreement comes just days before the so-called X date on Monday, which is the earliest date the Treasury Department has signaled the U.S. could default on debt obligations. The long negotiations between the White House and congressional leaders raised concern among investors that a default could take place. Despite the tentative agreement, obstacles remain on the path to passage for the compromise bill in the House amid growing opposition within the GOP.
Concern over the potential for another interest rate hike also weighed on investor sentiment. Traders are pricing in a 68.8% chance of a Federal Reserve rate increase next month, according to the CME Group’s FedWatch tool.
The Nasdaq was helped by a nearly 3% rally in Nvidia. The artificial intelligence-related stock reached a $1 trillion market cap — an elite marker surpassed by just a handful of stocks — at one point in Tuesday’s session, as shares continued to rally following its strong earnings report last week.
Chart of the Day:
Shares of large companies are racing past their smaller counterparts again. The Russell 1000 index of large companies has gained 9.2% this year, beating the 0.7% advance of the small-cap-concentrated Russell 2000. That is the widest outperformance since 1997, when looking at years in which the Russell 1000 has been in positive territory through May 26, Dow Jones Market Data show. The gains in the large-cap index have been driven largely by a handful of big technology stocks. Among the biggest winners are Facebook parent Meta Platforms and graphics chip maker Nvidia, which have both more than doubled in 2023. Conversely, the small-cap index has been pressured in part by big declines in regional-bank stocks. Valley National Bancorp has fallen 32%, while Independent Bank (Massachusetts) has dropped 46%.
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