U.S. stocks closed sharply higher, with the Nasdaq Composite and Nasdaq 100 leading the advance. The rally was broad enough to lift all five major indices, although small-cap stocks lagged behind their technology-heavy counterparts.
Falling Treasury yields provided an important tailwind. The 10-year yield declined nearly 7 basis points, while the 30-year moved further below 5.00%. Lower yields reduce the discount rate applied to future corporate earnings, which tends to be especially supportive for growth and technology stocks.
Semiconductor shares were among the strongest performers, with Super Micro Computer, Astera Labs, Arm, Intel and AMD all posting substantial gains.
U.S. stock indices close higher
- Dow Industrial Average rose 316.03 points, or 0.61%, to 51,783.17.
- S&P 500 rose 85.95 points, or 1.14%, to 7,637.77.
- Nasdaq Composite rose 439.87 points, or 1.69%, to 26,418.30.
- Russell 2000 rose 15.82 points, or 0.55%, to 2,874.63.
- Nasdaq 100 rose 501.92 points, or 1.73%, to 29,446.98.
The Nasdaq 100 narrowly outperformed the Nasdaq Composite, confirming that the largest technology companies were a major force behind the rally. Meanwhile, the more domestically focused Russell 2000 gained just 0.55%.
That divergence is worth watching. It does not make the rally bearish, but a more durable advance is generally healthier when small-cap and cyclical shares participate more fully.
Treasury yields move lower
The Treasury curve moved lower across the key maturities:
- 2-year yield: 4.6726%, down 5.4 basis points.
- 5-year yield: 4.7883%, down 6.7 basis points.
- 10-year yield: 4.9344%, down 7.0 basis points.
- 30-year yield: 5.2835%, down 6.5 basis points.
The decline in yields helped create a favorable backdrop for growth shares. When yields move lower, the present value of future earnings increases. Since many technology companies are valued on earnings expected well into the future, those shares can be especially sensitive to changes in market interest rates.
Of course, one day does not establish a lasting trend. Equity traders will want to see yields remain under pressure rather than reverse sharply higher.
Semiconductor and technology shares lead
Some of the day’s largest gains were concentrated in semiconductor and technology-related shares:
- Super Micro Computer rose 9.50% to $40.35.
- Astera Labs rose 9.06% to $293.56.
- Arm rose 8.57% to $264.90.
- Intel rose 7.67% to $108.80.
- Ambarella rose 6.60% to $66.91.
- AMD rose 6.36% to $545.09.
- SanDisk rose 6.21% to $1,614.39.
Moderna also gained 8.54% to $158.06, while the ARK Genomic Revolution ETF advanced 7.78% to $51.58.
The strength across several chip-related companies shows that the buying was not confined to one stock. Semiconductors helped pull the broader Nasdaq indices higher and gave technology buyers more confidence after the post-Fed volatility.
Crude oil moves lower
WTI crude oil settled at $101.25, down $1.18, or 1.15%. The session range extended from $99.10 to $102.47.
Lower oil prices can be supportive for the broader equity market because they may reduce inflation concerns, lower transportation and input costs, and ease some pressure on consumers. However, the impact is not uniform. A decline in oil may help consumer and transportation companies while weighing on energy producers.
Trading education: Look for confirmation across markets
One of the most useful lessons from today’s session is the importance of cross-market confirmation.
Technology shares moved sharply higher at the same time that Treasury yields moved lower. That relationship makes sense because lower interest rates increase the present value of future earnings. The simultaneous moves helped confirm the bullish price action in the Nasdaq.
Still, traders should avoid assuming that one strong session guarantees further gains. Buyers made a strong play today, but they now need to maintain the momentum. If yields reverse higher and technology shares begin giving back today’s gains, that would weaken the bullish message.
As I explain in my book Attacking Currency Trends, traders should identify the bias, define the risk and then look for price action that confirms the expected move. Today, lower yields and stronger technology shares pointed in the same direction. The next test is whether that relationship continues.
This article was written by Greg Michalowski at investinglive.com.