Stocks Finish the Week on a High Note

Stocks finished the week on a high note ahead of next week’s expected Fed rate cut. 

Though there’s plenty of remaining uncertainty about whether the U.S. central bank will go ahead with a 25 or 50 basis point cut, the stock market doesn’t seem to care. 

The SPDR S&P 500 ETF Trust (SPY) is now a mere 0.7% below its all-time closing high set in July. The tech-heavy Invesco QQQ Trust (QQQ) is down a bit more—5.4% from its highs—but has recovered notably from its lows in August and earlier in September.

Both SPY and QQQ rose about .5% in Friday trading. The S&P 500 and tech-heavy Nasdaq closed up 0.5% and 0.6%, respectively. 

The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ) both rose about 0.6%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) continued trending upwards, gaining 0.8% as stocks traded higher Friday. The market headed for a strong weekly gain ahead of the upcoming Federal Reserve meeting.

Sector ETFs showed broad strength, with industrials, materials and utilities leading the way. The Industrial Select Sector SPDR Fund (XLI), Materials Select Sector SPDR Fund (XLB) and Utilities Select Sector SPDR Fund (XLU) each climbed about 1.2%.

The iShares U.S. Aerospace & Defense ETF (ITA) rose nearly 1.1% despite Boeing’s 3.2% decline. Boeing factory workers went on strike Friday, rejecting a new labor contract and potentially affecting 737 Max production.

Homebuilder ETFs surged as investors anticipated a potential rate cut from the Federal Reserve next week. The iShares U.S. Home Construction ETF (ITB) gained 2.9% and SPDR S&P Homebuilders ETF (XHB) jumped about 3.3%. Redfin Corporation, a real estate brokerage firm, soared 23.5%, boosting these ETFs. 

Hopes have renewed for a jumbo-sized rate cut of 50 basis points, spurring markets higher Friday. According to the CME Fed Watch Tool, markets are forecasting a 45% chance of the larger cut from the Federal Reserve when it hands out its rate decision next week. A larger cut would be a bigger tailwind to high growth sectors like tech, while also adding fuel to a slowing economy.

Markets responded to the possibility, accelerating gains by midday. SPY, the SPDR S&P 500 ETF Trust jumped nearly .75% while the tech-heavy Invesco QQQ Trust (QQQ) also rose by .60%. DIA, the SPDR Dow Jones Industrial Average ETF Trust rose the most, jumping close to .90%.

Leveraged retail ETF RETL was among the top gainers Friday, according to etf.com data. The Direxion Daily Retail Bull 3x Shares (RETL) soared more than 8% while investors also piled into other leveraged ETFs for Uber, MicroStrategy, and in real estate. 

According to the etf.com Markets Monitor, investors piled back into small cap ETFs going for funds that have largely been ignored during the year in the hopes of taking advantage of greater gains, especially once the Fed cuts rates.