Wall Street saw a resurgence in optimism as traders speculated on a potential half-point rate cut by the Federal Reserve, driving stocks to their best week of 2024. Economically sensitive sectors outpaced tech megacaps, with the Russell 2000 index of smaller firms rising 2.5%. Investors are increasingly rotating into areas of the market that stand to benefit from policy easing, with an equal-weighted S&P 500 outperforming the broader index, reflecting a potential broadening of the rally.

The shift in market dynamics comes as the likelihood of a 50-basis-point rate cut surged to 40%, spurred by recent inflation data and a softer labor market. Small-cap stocks, which tend to benefit more from interest rate cuts due to higher leverage, are positioned to rally further if the Fed moves aggressively. However, while tech stocks took a breather, many investors caution against dismissing the “Magnificent Seven,” as their growth potential remains hard to overlook, despite recent challenges.