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Stocks Hit All-Time Highs as Small-Caps Stage Breakout
US stocks appear set for another winning week in an overall positive follow-up reaction to the Federal Reserve’s first interest rate cut this year.
Heading into Friday’s session, the S&P 500 advanced 0.72% on the week. The Dow added 0.67%, while the Nasdaq leapt 1.49%. All three of the major US indexes are trading at all-time highs. The S&P 500 and Nasdaq are looking to notch their third consecutive winning week.
Despite an initial negative response to the 25-basis point cut on Wednesday, markets rebounded strongly yesterday. Often times, the true market reaction can occur in the aftermath of significant economic events and data releases.
The Fed’s widely expected move marked the first cut since December of last year. Newly confirmed Fed governor Stephen Miran was the only member who dissented in favor of a jumbo-sized (50-basis point) cut.
Fed Chair Jerome Powell referred to the FOMC’s decision as a “risk management cut” after acknowledging recent softness in the labor market. Policymakers also signaled two more rate cuts this year.
Market Performance Following Rate Cuts
The S&P 500 has tended to rally when the Fed cuts rates after a long pause (that is, greater than 6 months) within the context of an easing cycle.
And yes, we remain in the midst of an easing cycle (the last rate hike was July 2023, while the Fed cut 3 times last year to start the easing process). Based on historical data dating back to 1976 (which includes 6 similar instances), aligning a September 17th cut suggests an average gain 12 months out of about 15%.
Large-cap US stocks have done very well in this environment, thanks to technology stocks leading the way. But peeling back the onion shows a bigger theme in recent months and that is one of rotation. Many other markets are just starting to hit new highs.
We’ve seen small-caps rally on rate cuts lately. And small-caps are fairly cheap; on a relative basis, the forward P/E of small-caps is near its lowest level vs. large-caps since 1999.
The Russell 2000 ETF (IWM - Free Report) , which tracks the Russell 2000 index and is illustrated in the below graph, shows small-caps failed to really breakout since their previous high in November 2021. A false breakout occurred in November of last year, and now the index has rallied and is surpassing that level, hitting a new all-time high just yesterday. A sustained break above the former double top could bring a new regime.
Image Source: StockCharts
Stocks to Watch
Several constituents within the IWM ETF have been on fire lately.
Top holding Credo Technology Group (CRDO - Free Report) has evolved into a market leader, with shares surging more than 150% in 2025. Credo Technology is a provider of high-performance serial connectivity solutions for hyperscale data centers along with 5G carrier and enterprise networking markets.
A Zacks Rank #1 (Strong Buy), Credo Technology boasts a long track record of exceeding earnings estimates. Earlier this month, Credo delivered fiscal first-quarter earnings of 52 cents per share, handily outpacing the $0.35/share consensus estimate by 48.6%. Shares have broken out to a new all-time high following the release:
Image Source: StockCharts
Analysts continue to revise earnings estimates higher. For the current quarter, estimates have risen 33.33% in the past 60 days. The fiscal Q2 Zacks Consensus EPS estimate now stands at 48 cents per share, reflecting a 585.7% growth rate relative to the year-ago period.
Image Source: Zacks Investment Research
Another leading stock and component of the IWM ETF is quantum computing company IonQ (IONQ - Free Report) . The company has seen its stock soar to new heights after completing its acquisition of UK-based Oxford Ionics, expanding its international footprint and broadening its diversified portfolio.
IonQ provides its quantum system through the cloud on Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, as well as through direct API access. It develops quantum computers and networks.
While IonQ continues to operate at a net loss, revenues in the current year are expected to leap 115% to $92.7 million. The stock is currently a Zacks Rank #3 (Hold). Shares of the quantum leader have broken out to the upside in September and are now up nearly 60% year-to-date:
Image Source: StockCharts
Bottom Line
While markets appear extended in the short-term, the trend remains strong, and bullish sentiment is not yet at levels that warrant caution. This tells us to keep an open mind about further upside from here.
This is a healthy, trending market, and many individual stocks are outperforming. Make sure to take advantage of all that Zacks has to offer to uncover leading stocks.
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Stocks Hit All-Time Highs as Small-Caps Stage Breakout
US stocks appear set for another winning week in an overall positive follow-up reaction to the Federal Reserve’s first interest rate cut this year.
Heading into Friday’s session, the S&P 500 advanced 0.72% on the week. The Dow added 0.67%, while the Nasdaq leapt 1.49%. All three of the major US indexes are trading at all-time highs. The S&P 500 and Nasdaq are looking to notch their third consecutive winning week.
Despite an initial negative response to the 25-basis point cut on Wednesday, markets rebounded strongly yesterday. Often times, the true market reaction can occur in the aftermath of significant economic events and data releases.
The Fed’s widely expected move marked the first cut since December of last year. Newly confirmed Fed governor Stephen Miran was the only member who dissented in favor of a jumbo-sized (50-basis point) cut.
Fed Chair Jerome Powell referred to the FOMC’s decision as a “risk management cut” after acknowledging recent softness in the labor market. Policymakers also signaled two more rate cuts this year.
Market Performance Following Rate Cuts
The S&P 500 has tended to rally when the Fed cuts rates after a long pause (that is, greater than 6 months) within the context of an easing cycle.
And yes, we remain in the midst of an easing cycle (the last rate hike was July 2023, while the Fed cut 3 times last year to start the easing process). Based on historical data dating back to 1976 (which includes 6 similar instances), aligning a September 17th cut suggests an average gain 12 months out of about 15%.
Large-cap US stocks have done very well in this environment, thanks to technology stocks leading the way. But peeling back the onion shows a bigger theme in recent months and that is one of rotation. Many other markets are just starting to hit new highs.
We’ve seen small-caps rally on rate cuts lately. And small-caps are fairly cheap; on a relative basis, the forward P/E of small-caps is near its lowest level vs. large-caps since 1999.
The Russell 2000 ETF (IWM - Free Report) , which tracks the Russell 2000 index and is illustrated in the below graph, shows small-caps failed to really breakout since their previous high in November 2021. A false breakout occurred in November of last year, and now the index has rallied and is surpassing that level, hitting a new all-time high just yesterday. A sustained break above the former double top could bring a new regime.
Image Source: StockCharts
Stocks to Watch
Several constituents within the IWM ETF have been on fire lately.
Top holding Credo Technology Group (CRDO - Free Report) has evolved into a market leader, with shares surging more than 150% in 2025. Credo Technology is a provider of high-performance serial connectivity solutions for hyperscale data centers along with 5G carrier and enterprise networking markets.
A Zacks Rank #1 (Strong Buy), Credo Technology boasts a long track record of exceeding earnings estimates. Earlier this month, Credo delivered fiscal first-quarter earnings of 52 cents per share, handily outpacing the $0.35/share consensus estimate by 48.6%. Shares have broken out to a new all-time high following the release:
Image Source: StockCharts
Analysts continue to revise earnings estimates higher. For the current quarter, estimates have risen 33.33% in the past 60 days. The fiscal Q2 Zacks Consensus EPS estimate now stands at 48 cents per share, reflecting a 585.7% growth rate relative to the year-ago period.
Image Source: Zacks Investment Research
Another leading stock and component of the IWM ETF is quantum computing company IonQ (IONQ - Free Report) . The company has seen its stock soar to new heights after completing its acquisition of UK-based Oxford Ionics, expanding its international footprint and broadening its diversified portfolio.
IonQ provides its quantum system through the cloud on Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, as well as through direct API access. It develops quantum computers and networks.
While IonQ continues to operate at a net loss, revenues in the current year are expected to leap 115% to $92.7 million. The stock is currently a Zacks Rank #3 (Hold). Shares of the quantum leader have broken out to the upside in September and are now up nearly 60% year-to-date:
Image Source: StockCharts
Bottom Line
While markets appear extended in the short-term, the trend remains strong, and bullish sentiment is not yet at levels that warrant caution. This tells us to keep an open mind about further upside from here.
This is a healthy, trending market, and many individual stocks are outperforming. Make sure to take advantage of all that Zacks has to offer to uncover leading stocks.