Nasdaq and S&P 500 dropped from peaks due to large-cap stocks; investors turned to small-caps on hopeful rate cut signals.
A recent Labor Department report indicated a surprise decline in U.S. consumer prices, marking the smallest annual rise in a year, suggesting a return to disinflation.
The data offers reassurance to Federal Reserve policymakers aiming for 2% inflation, prompting traders to bet on a September rate cut.
Although inflation improved, megacap stocks like Apple, Microsoft, Alphabet, and Nvidia fell by 2.6% to 4.9%.
Despite significantly lagging this year, the Russell 2000 surged 3.1% to a three-month high, anticipating improved conditions with expected interest-rate cuts.
Wall Street’s 2024 rally hinges on major stocks, raising concerns about sustainability amid weaker market sectors.
“We’ve been saying for a long time that the concentration (in technology) was becoming too intense. If the Fed is now moving its stance from tightening to loosening, that should lead to better economic days ahead and a shift away from this restricted group of companies to a broader range of prospects,” said Sameer Samana, senior global markets analyst at Wells Fargo Investment Institute.
The S&P 500 Real Estate Index surged 2.7%, leading sectors, reducing year-to-date losses to less than 1%. Conversely, Communication Services and Information Technology each declined by more than 2.4%.
When markets began, the S&P 500 and Nasdaq both set new record highs in range-bound trading.
Delta Air Lines fell 5.3%, marking its largest single-day drop since mid-January, due to lower profit forecasts.
Other major airline stocks also fell, with the S&P 500 passenger airline index losing 4.1%.
“This might be a place where people are feeling squeezed by inflation. “That’s reflected in discretionary funding for things like airline tickets,” said Scott Helfstein, Global X’s head of investment strategy.
Investors await Friday’s Producer Price Index and big banks’ second-quarter earnings for inflation trends.
At 12:12 p.m. ET, the Dow rose slightly, the S&P declined, and the Nasdaq dropped significantly.
Tesla’s stock dropped more than 6% due to delays in its Robotaxi launch. Citigroup also fell 1.6% following a $136 million regulatory fine.
Conagra Brands’ stock dropped 2.6% as the company projected annual revenue and profit below expectations.
On the NYSE, advancers outnumbered decliners significantly, with a ratio of 5.30 to 1, while on the Nasdaq, it was 3.00 to 1.
The S&P 500 index saw 47 new highs and one new low, whereas the Nasdaq had 126 new highs and 34 new lows.
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