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• Wall Street indices hit record highs, driven by tech stocks and Netflix's earnings-induced leap.
• The 'Magnificent Seven' tech sector saw a rise, with Apple and Nvidia making notable gains.
• Despite positive market sentiment, potential vulnerabilities like high valuations and political uncertainties exist.
• Small-cap stocks attracted investor interest, but the energy sector dropped due to lower oil prices and disappointing earnings.

The Dow Jones Industrial Average and S&P 500 chalked up record closing highs on Friday, with the Nasdaq also ending in positive territory. This surge in the market was primarily driven by an earnings-induced leap in Netflix shares and broader gains across technology stocks. This marked a significant milestone for the three major Wall Street benchmarks, as they comfortably secured a sixth straight weekly gain, their longest weekly winning streak since late 2023.

Netflix, the streaming giant, saw its shares jump 11.1% to a record closing high after it surpassed Wall Street estimates for subscriber additions. The company also projected continued growth through the end of the year, further boosting investor confidence. This surge in Netflix's shares significantly lifted the communication services sector, making it the largest gainer among the 11 S&P 500 sectors.

The tech sector, often referred to as the 'Magnificent Seven,' which has been a significant driver of Wall Street's rally this year, also saw a rise. Apple gained 1.2% after data showed a sharp increase in new iPhone sales in China. Similarly, chip heavyweight Nvidia advanced 0.8% after BofA Global Research hiked its price target on the stock.

Market Sentiment and Potential Vulnerabilities

David Waddell, chief executive of Waddell & Associates, described the current market situation as the 'what's not to like' market. He attributed this positive sentiment to favorable economic data, disinflation, and upbeat earnings and forecasts from corporate America. However, the Dow's gains on Friday were somewhat restrained by American Express, which lost 3.1% after the credit card company's quarterly revenue missed estimates. Despite this, the Dow managed to post a record closing high for the fifth session in the last six.

The financial sector has had a broadly positive earnings season so far, with the S&P Banks index slipping only 0.1%, ending its string of wins at five. The upbeat earnings of financial companies, coupled with broadly positive economic data, have helped sustain the three main indexes' upward trajectory in recent days.

Despite the current market optimism, there are concerns about potential vulnerabilities. The S&P 500 is trading at nearly 22 times forward earnings, and with high expectations for corporate results and potential volatility around the upcoming U.S. presidential election, stocks could be susceptible to a pullback. However, David Waddell noted that strong corporate earnings could override any political considerations or concerns about overdone valuations.

Small-Cap Stocks and Sector Performance

In recent days, small-cap stocks have attracted investor buying, with both the Russell 2000 and S&P Small Cap 600 outperforming major indexes for the week. However, both small-cap indexes were down slightly on Friday.

The energy sector was the only S&P sector to drop, falling 0.4%, as it was weighed down by lower oil prices and a 4.7% decline in SLB after it posted earnings below expectations. This dragged down fellow oilfield services providers Baker Hughes and Halliburton by 1.3% and 2.1%, respectively.

The energy index was the week's worst-performing sector, dropping 2.6%, as U.S. crude prices slumped 7% due to concerns over Chinese demand and the ongoing conflict in the Middle East. In other news, CVS Health dropped 5.2% after it replaced CEO Karen Lynch with company veteran David Joyner and withdrew its 2024 profit forecast. This news also weighed on other health insurers, including Cigna and Elevance Health. The latter, which fell 3.1%, closed at its lowest level in nearly 15 months.