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Tech drags indexes lower, small-caps soar after inflation data boosts rate-cut bets

June inflation was cooler than anticipated, but stocks tumbled as investors rotated out of big 2024 winners and into laggards like small-cap stocks. AP Photo/David J. Phillip

  • Tech stocks tumbled Thursday, weighing on the broader market after the June CPI report.

  • Inflation was cooler than expected last month, clocking in at 3% year-over-year.

  • Investors appeared to take that as a cue to rotate out of some of the biggest winners and buy laggards like small-caps.

US stocks slid on Thursday, weighed down by tech names like Nvidia and Microsoft as the Nasdaq tumbled 2%.

The S&P 500 closed below 5,600 after ending Wednesday’s session above that threshold for the first time.

Meanwhile, the small-cap-focused Russell 2000 jumped 3.6% during the session. Smaller companies, which are often more highly leveraged and therefore more sensitive to interest rates, have struggled as the Federal Reserve has kept them higher to battle inflation.

With cooler June CPI opening the door for potentially steeper rate cuts this year, investors are betting that laggards among small-caps could be the next to rally. The Russell 2000 is up about 5% in 2024, compared to 18% for the S&P 500.

“[Rate cuts] support our expectation for the stock market rally to continue and broaden out from the Magnificent-7,” market veteran Ed Yardeni said in a note. “[Small and mid-cap stocks] have been weighed down by high interest rates and have remained relatively cheap when the Fed was tightening monetary policy.”

Here’s where US indexes stood at the 4:00 p.m. closing bell on Wednesday:

Inflation clocked in at 3% last month, cooler than expected and marking the second month of encouraging data after a tough first quarter.

Commentators were quick to call a September rate cut as all but assured, and the odds of a cut at this month’s policy meeting crept up slightly as well.

“A September rate cut should be a done deal at this point. In the second quarter, the run-rate for headline inflation in the US was only 1.1%, with core inflation at 2.1%, making it increasingly evident that the first quarter upside surprises were anomalous,” Lazard Chief Market Strategist Ron Temple said.

“Given the increasing evidence of slowing economic growth, it’s time for the Fed to refocus on the dual mandate and ease monetary policy.”

Here’s what else happened today:

In commodities, bonds, and crypto:

  • Oil futures rose. West Texas Intermediate crude was up 1% to $82.98 a barrel. Brent crude, the international benchmark, increased 0.7% to $85.71 a barrel.

  • Gold rose 1.8% to $2,422 per ounce.

  • The 10-year Treasury yield dropped seven basis points to 4.205%.

  • Bitcoin was about flat at $57,515.

Read the original article on Business Insider


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