The Hottest Markets to Watch After the Fed’s 25 Bps Rate Cut

Key Points

• The Fed cut rates by 25 bps and alleviated much uncertainty about the future of interest rates.
• Multiple forces are in play that will lead to strong stock market tailwinds in 2025.
• The NASDAQ broke to new highs, with big gains in Big Tech, but the hottest action was in the Russell 2000. 

The FOMC cut interest rates as expected, leaving the market feeling good about inflation and the economy. The news sent a wave of relief through the stock market, alleviating uncertainty and helping clear the outlook for 2025. The result is bullish; the NASDAQ Composite NASDAQ: QQQ broke out of its trading range to set new highs, and it and other indexes will likely move higher over the next month, quarter, and year. 

The Fed has removed uncertainty and cleared the outlook, and other positive forces are in play to sustain upward pressure on stocks as the rally broadens. Those include AI and a business-friendly President. Regarding AI, demand for infrastructure and services will drive results in the tech sector, while AI-driven efficiency and productivity improvement will do the same for all others. Regarding Trump, his business and consumer-friendly policies aided a near-70% increase in the S&P 500 during the first administration and will likely provide similar support for stocks the second time around. 

Chips Stocks Surge, NVIDIA Hits New Highs: Look to the Russell 2000

The NASDAQ Composite gained about 1.5%, with most of the gains made by semiconductor and tech stocks. NVIDIA NASDAQ: NVDA, the largest component of the NASDAQ and the S&P 500, gained 2.25% to set a new high, putting its stock on track to hit $165 by year’s end based on the technical outlook. The Philadelphia Semiconductor NASDAQ: SOXX made a similar move, jumping more than 2.0% for the day on broad-based buying. However, the real action was in the small caps and the Russell 2000 INDEXRUSSELL: RUT. 

The Russell 2000 surged more than 5.75% in one day to hit a three-year high. The move confirms the sector rotation into small caps, which was hinted at earlier this year. The move looks strong and is technically healthy, with the stochastic and MACD bullish, showing an engaged market ready to run with ample room to move higher. Leading names within the index gained an average of 35%, including FARO Technology NASDAQ: FARO, Wolverine Worldwide NYSE: WWW, IonQ NYSE: IONQ, and Freyr Battery NYSE: FREY. The next move in the RUT index will likely take it up to retest for resistance at the all-time high. A move above that level opens the door to a substantial rally, extending long-term trends that could take it above 3,000 by the end of Trump’s term. 

The Top 3 Russell 2000 Stocks to Buy Now

Faro Technologies: 3D Measurement Leader Facing Macro Headwinds

Faro Technologies is a software company focusing on 3D measurement and imaging. Results in 2024 include business contraction due to macroeconomic headwinds, but growth is forecast for next year.

The consensus target reported by MarketBeat suggests a slim 3.9% top-line advance that likely underestimates the rebound due to the tailwinds likely to develop as the year progresses.

Analysts rate the stock with a consensus of Buy, and see it moving to the $28-$30 range.

Wolverine Worldwide: Iconic Shoe Brands Facing Shifting Consumer Trends

Wolverine Worldwide is a shoe manufacturer and retailer with a portfolio of iconic brands, including Merril, Saucony, Stride Rite, and Hush Puppies.

The 2024 results include significant business contraction related to shifting consumer trends; consumers are more likely to wear out their shoes when financial conditions are tighter but will splurge on numerous new pairs when they improve.

The outlook for Wolverine’s 2025 is for revenue to resume growth, advancing by a slim 5% compounded by wider margin. Earnings growth is expected to be accelerated at nearly 50%. Until then, the 2024 cash flow and balance sheet can sustain the dividend. The analysts’ consensus price target lags the price action in WWW shares but is rising following a shift in sentiment. The analysts began lifting the ratings and price target in 2024, improving the consensus sentiment to Moderate Buy from Hold and price target by 50%, a trend likely to continue in 2025. 

IonQ: A Leader in Quantum Computing Solutions

IonQ Inc. makes and services the quantum computing industry.

Its products are sold through a cloud-based network and have begun to see demand.

The 2024 results include growth accelerating to 100%, with a forecast for 100% growth in 2025.

The company is yet to be profitable, with only $10 million in quarterly revenue in Q3, but that is expected in time.

Continued advancements in quantum technology and increased partnerships are likely to fuel IonQ's revenue growth, positioning it as a potential leader in the emerging quantum market.