What's driving Friday's big market comeback, a day after heavy tech selling

Published Fri, Jul 12 20242:21 PM EDT

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Green day : A lot was working in the stock market on Friday. And it showed. The Dow jumped back to all-time highs, adding more than 1%, as Day 2 of the broadening out trade continued. Everything from large caps to small caps was higher. A lot was also working in Thursday's market. But it was hard to see through an ugly rotation out of this year's Big Tech winners in favor of more interest rate-sensitive stocks. A softer June consumer price index boosted expectations on the number of Federal Reserve rate cuts this year, giving investors the go-ahead to book profits in tech and buy other sectors of the market, which have lagged but benefit more from lower rates. The Nasdaq sank nearly 2% on Thursday – but one day later, it was clawing back much of those losses. The S & P 500 bounced more than 1% on Friday, recovering the losses and then some from the prior session and going back to records. Where things stood late in Friday trading, all three stock measures were looking positive for the week. Inflation : Investors were hoping to see the government's June producer price index confirm the cooler CPI. That didn't happen. The PPI was a bit hotter Friday, but the market wasn't bothered. The CPI, which measures consumer inflation, weighs more heavily into the Federal Reserve's rate calculations. And after Thursday's data, the market started expecting as many as three rate cuts this year. Following its June meeting, the Fed projected one cut this year. Central bankers meet again at the end of this month. Small caps : The Russell 2000 of small-cap stocks rose another 1%-plus on Friday, one day after surging nearly 5.5%. The index was on track for its best week of the year. One of the biggest winners this week was shares of Morphic , which surged 75% after Club name Eli Lilly announced late Monday an agreement to buy the inflammatory bowel diseases drug developer for $3.2 billion in cash. Lilly hit another all-time high Friday. The stock jumped 3.5% this week. Laggards : The worst-performing stock in the portfolio Friday was Wells Fargo, which fell 6%. Despite better-than-expected quarterly earnings per share and revenue, the company reported a smaller-than-expected $11.92 billion in net interest income. Wells Fargo said NII, a key measure of what a bank makes on lending, was hurt by higher-for-longer rates. The company also raised its expense outlook for the year due in part to higher revenue from its fee-based businesses. That's a good problem to have. Wells Fargo was the second-worst Club performed of the week. The worst of the week was Meta Platforms , which dropped nearly 6.5%. Many of our hot tech stocks took a breather this week. We also took profits in Meta on Monday. Winners : It was nice to see fellow Club names Nvidia and Apple among our weekly winners despite Thursday's rotation out of tech. It's more evidence of why Jim Cramer calls these two names "own, don't trade" stocks. But this week belonged to our non-tech holdings and those that can benefit from Fed rate cuts. Solar company Nextracker was our best, surging more than 14.5% this week, followed by toolmaker Stanley Black & Decker up almost 11%, and automaker Ford up 9%. Up next : The week ahead brings earnings from our other financial giant, Morgan Stanley . That's on Tuesday. Compared to Wells Fargo's dependency on NII, Morgan Stanley is more of a play on capital markets activity, which should be up nicely off 2023 levels. Though NII matters to wealth management margins too. Last week, we took profits in both Wells Fargo and Morgan Stanley after what had been to that point some nice runs higher. Club name Abbott Laboratories reports this coming Thursday. Notable economic numbers next week include retail sales on Tuesday as well as both housing starts and industrial production on Wednesday. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

The Charging Bull in the Financial District in New York City.

Mairo Cinquetti | Nurphoto | Getty Images

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.