Tech Stocks Stall, Small Caps Surge As Regional Banks Rally, Airlines Rocket: What's Driving Markets Wednesday?

Small-cap stocks outperformed large caps in Wednesday's session, with the Russell 2000 Index surging to test July 2024 highs on the back of expectations for interest rate cuts and a strong rally in regional banks.

Financial stocks continued their upward momentum, buoyed by strong earnings reports. Morgan Stanley (NYSE:MS) significantly beat expectations, propelling its stock up by 8% to new all-time highs.

Regional banks, as tracked by the SPDR S&P Regional Banking ETF (NYSE:KRE), rallied 2.1%, hitting levels last seen in early March 2023, prior to the fallout of Silicon Valley Bank.

Airlines also soared, with United Airlines Holdings Inc. (NASDAQ:UAL) posting an 11% rally. The surge lifted the entire industry, as tracked by the U.S. Global Jets ETF (NYSE:JETS), which reached its highest level since July 2023.

The tech sector lagged, weighed down by weak performance in semiconductors. The industry was still reeling from ASML Holding N.V. (NASDAQ: