Stock prices rose after Wednesday’s close to hit new record highs. Contributing factors included the Fed’s quarter-point rate reduction and Nvidia’s announced investment in Intel.
The large-cap S&P 500 index rose 0.5% while the technology-focused Nasdaq Composite rose 0.9%. The Dow Jones Industrial Average, focused on blue-chip stocks, rose 0.3%.
The Fed also projected two additional rate cuts this year, which would lower the year-end federal funds rate to a range of 3.5% to 4%.
Additionally, Nvidia announced Thursday that it would invest $5 billion in fellow chipmaker Intel, pending regulatory approval. Intel, once a Silicon Valley powerhouse, has been struggling to reshape its business for years.
Investors responded positively to the alliance announcement because it signals further innovation in AI and data center chips. The move also strengthens market positioning for Nvidia and Intel.
Under the proposed arrangement, Nvidia and Intel will collaborate on PC and data center chips. Intel has a chip foundry that makes chips under contract. The foundry will not produce chips for Nvidia but it will provide central processors and advanced packaging for the products Nvidia and Intel jointly design.
The transaction creates some risk for competing U.S. chip companies AMD and Broadcom and possibly for Taiwan Semiconductor, the main foundry that makes Nvidia chips.
Stock futures for the S&P 500, Nasdaq 100 and Dow Jones are nearly flat ahead of the market open on Friday.
Investing & Economic News To Watch Today
The S&P 500 will rebalance prior to the opening bell on September 22. The large-cap index is updated quarterly or more often if corporate transactions, such as mergers and acquisitions, require it.
These companies will join the S&P 500:
- AppLovin (APP)
- Robinhood Markets (HOOD)
- Emcor Group (EME)
These companies will leave the S&P 500:
- MarketAxess Holdings (MKTX)
- Caesars Entertainment (CZR)
- Enphase Energy (ENPH)
S&P 500 funds will adjust their portfolios to reflect these changes. Those updates can create price increases for the added companies and declines for removed constituents. The price changes can be temporary or lingering, depending on each company’s financial health and business outlook.
Today’s Trading Lesson
Rebalancing: All-at-once or gradual? Rebalancing is the process of restoring a targeted allocation within your investment account. Portfolios can drift away from targeted allocations, largely because equity holdings appreciate while debt holdings do not.
Here’s an example. Let’s say you bought two shares of S&P 500 fund VOO and three shares Vanguard bond fund (BND) on September 18, 2024. Based on the pricing on that day, your portfolio would have a total value of $1,261, divvied up as:
- $1,036 or 82.2% in VOO
- $225 or 17.8% in BND
One year later, absent reinvestments or any other changes in your account, the portfolio looks like this:
- $1,217.10 or 84.5% in VOO
- $223.23 or 15.5% in BND
The change is small in this case, but the allocation has shifted to be slightly riskier. When the change is large enough to demand your attention, you can restore the target allocation all at once or gradually.
All-at-once rebalancing. This involves selling off some of your over-weighted position—in this case, VOO—and using the proceeds to buy the underweighted BND. Consider this option when selling will realize a profit and you want to update your risk profile quickly.
Gradual rebalancing. To rebalance gradually, simply adjust the composition of your new investments. In this case, you could pause on new purchases of VOO and buy more BND until the right balance is restored. You can take this approach in down markets to avoid realizing losses.
You may also need to move gradually if the math doesn’t work for a quick rebalance. In this example, selling one share of VOO would be too drastic of a change. An all-at-once rebalance would not be workable unless your broker supports fractional shares.