- Tech stocks fell sharply on Thursday, weighing on the broader market following the release of June’s CPI.
- Inflation last month was lower than expected, coming in at 3% year-on-year.
- This appears to have prompted investors to pull out of the biggest gainers and start buying laggards like small caps.
U.S. stocks fell on Thursday, weighed down by tech names such as Nvidia and Microsoft, with the Nasdaq dropping 2%.
The S&P 500 closed below 5,600 after closing Wednesday’s session above the 5,600 threshold for the first time.
Meanwhile, the small-cap-weighted Russell 2000 index rose 3.6% during trading. Smaller companies, which are often highly leveraged and more vulnerable to interest rates, have struggled as the Federal Reserve keeps stock prices high to hedge against inflation.
With weak June CPI data raising the possibility of more rate cuts this year, investors are betting that small-cap laggards could be the next to rise. The Russell 2000 is projected to gain about 5% in 2024, while the S&P 500 is projected to rise 18%.
“[Rate cuts] “This confirms our expectation that the stock market rally will continue and extend beyond the Magnificent Seven,” market veteran Ed Yardeni said in a note.[Small and mid-cap stocks] Stocks have been depressed by high interest rates and have been relatively cheap when the Fed has been tightening monetary policy.”
As of the close of trading at 4pm on Wednesday, U.S. stock indexes were as follows:
Inflation last month came in at 3 percent, lower than expected, marking the second consecutive month of positive data after a grim first quarter.
Commentators were quick to point out that a cut in September was almost certain, and the chances of a rate cut at this month’s policy meeting have also increased slightly.
“A September rate cut should be a lock at this point. With U.S. headline inflation at just 1.1% in the second quarter and core inflation at 2.1%, it’s becoming increasingly clear that the upside surprise in the first quarter was an anomaly,” said Ron Temple, chief market strategist at Lazard.
“Given growing evidence of slowing economic growth, it is time for the Fed to refocus on its dual mandate and ease monetary policy.”
Here’s something else that happened today:
Commodities, Bonds and Cryptocurrencies:
- Oil futures rose. West Texas Intermediate crude rose 1% to $82.98 a barrel. Brent crude, the international benchmark, rose 0.7% to $85.71 a barrel.
- Gold rose 1.8% to $2,422 an ounce.
- The yield on the 10-year Treasury note fell 7 basis points to 4.205%.
- Bitcoin was nearly flat at $57,515.
