The major averages finished higher this week, but the gains were concentrated in mega-cap growth and software stocks as the broader market struggled. The S&P 500 and DJIA each gained 0.5%, while the Nasdaq Composite rose 0.9%. In contrast, the Russell 2000 fell 1.5% and the S&P Mid Cap 400 declined 1.3%.
Technology provided the week's primary source of support, though performance within the sector was sharply divided. The information technology sector gained 1.8%. NVIDIA also rallied sharply after its earnings report on Thursday, but semiconductor stocks remained volatile. That divergence allowed software strength to offset continued pressure across chips and helped keep the technology sector firmly higher.
Mega-cap stocks provided another important source of support. Strength in several of the market's largest technology and communication services names helped the communication services sector rise 1.6%, while the financials sector (+1.1%) was the only other sector to gain more than 1.0%. The concentrated leadership was especially apparent Thursday, when the S&P 500 gained 0.7% despite ten of its 11 sectors finishing lower.
The disparity between large-cap growth and the broader market became more pronounced as the week progressed. The health care (-2.0%), energy (-2.0%), industrials (-1.7%), and real estate (-1.3%) sectors were among the main laggards, while small- and mid-cap stocks substantially underperformed. WTI crude fell roughly 4.3% for the week amid several swings tied to developments involving Iran and the Strait of Hormuz.
Monetary policy returned to the forefront on Friday after Fed Chair Kevin Warsh used his Jackson Hole address to emphasize that inflation remains above the Fed's 2% target and that price stability should remain the central bank's predominant focus. The remarks drove the probability of a September rate hike sharply higher and triggered a pronounced rise in Treasury yields, with the 2-year note yield jumping 12 basis points on Friday alone to 4.35%. The move added to pressure on small- and mid-cap stocks and contributed to a modest pullback in the major averages to end the week.
Overall, the week's positive index performance masked a considerably weaker showing beneath the surface. Strong software earnings and gains across mega-cap growth stocks allowed the S&P 500 and Nasdaq to overcome continued semiconductor weakness, while small- and mid-cap stocks and most S&P 500 sectors finished lower. Friday's hawkish shift in rate expectations added another source of uncertainty heading into the new week, but the concentrated strength in large-cap growth was enough to leave all three major averages with weekly gains.
Nasdaq Composite: +1.9% week-to-date
DJIA: +0.5% week-to-date
S&P 500: +0.5% week-to-date
S&P Mid Cap 400: -1.3% week-to-date
Russell 2000: -1.5% week-to-date