Nasdaq and S&P 500 Drop as Investors Eye Fed Rate Cut in September
In a surprising turn of events, the Nasdaq and the S&P 500 tumbled from their record highs on Thursday, sparked by losses in tech giants Nvidia and Tesla. This shift came as investors rotated into smaller companies following softer-than-expected inflation data, which fueled hopes for a Federal Reserve interest rate cut in September.
A report from the Labor Department revealed that U.S. consumer prices unexpectedly fell in June, with the annual increase being the smallest in a year. This development has brought the Fed closer to a potential rate cut in September.
Interest rate futures are now indicating a more than 90% chance of a rate cut at the Fed's September meeting, up from about 74% just a day before. Despite the signs of receding inflation, megacap stocks took a hit.
Tesla saw a 6.5% drop after news broke that the launch of its robotaxi has been delayed by about two months. Apple also fell 2.4% after reaching a record high, with BofA Global Markets raising its price target for the tech company.
While tech-related stocks slumped, shares of smaller companies rallied, with the small-cap index jumping 3.4% to a three-month high. Investors are optimistic that rate cuts will improve conditions for these smaller businesses.
Overall, the S&P 500 real estate index surged 2.8%, while the communication services and information technology indexes each experienced losses of nearly 3%. Delta Air Lines faced a sharp decline of almost 6% after forecasting lower-than-expected profits for the current quarter.
Looking ahead, investors are eagerly awaiting the Producer Price Index data for insights into the inflation trajectory, as well as second-quarter earnings reports from major banks.
In summary, the market reaction to the potential Fed rate cut in September has been mixed, with tech stocks taking a hit while smaller companies are seeing a boost. The outcome of these rate cut expectations and inflation data could have significant implications for investors' portfolios and financial decisions. Stay tuned for more updates as the situation continues to unfold.