On Thursday, the Nasdaq Composite Index experienced a notable decline as investor sentiment pivoted away from large technology stocks such as Nvidia, Apple, and Tesla. This shift in sentiment was largely driven by the release of softer-than-expected inflation data, which heightened expectations that the Federal Reserve could move to cut interest rates sooner rather than later.
The broader market indices also reflected this sentiment, with the S&P 500 ending the day in negative territory following a report from the Labor Department that revealed a surprising decrease in U.S. consumer prices for the month of June. This data indicated that the annual increase was the smallest seen in the past year, further nudging the Fed toward considering rate cuts to support economic growth.
In contrast, the Dow Jones Industrial Average managed to eke out modest gains by the close of trading, underscoring the mixed reactions across different sectors to the inflation data and its implications for monetary policy.
Market indicators strongly suggested that rate cuts could be imminent, with interest rate futures implying a greater than 90% probability of a Fed rate cut by the September meeting. This was a significant increase from the approximately 74% probability priced in by traders just a day earlier, as indicated by CME Group’s Fedwatch tool.
Despite the overall optimism surrounding potential rate cuts benefiting smaller companies, the day saw significant declines among some of Wall Street’s tech giants. Microsoft and Amazon each experienced declines of more than 2%, while Meta Platforms, formerly known as Facebook, dropped by about 4%. Tesla’s stock notably plummeted by 8.4%, marking its largest single-day percentage decline since January. This sharp drop followed news reports indicating that the company would delay its highly anticipated robotaxi launch until October.
Apple, after reaching a record high in the previous session, fell by 2.3%. Despite this decline, BofA Global Markets raised its price target for Apple, citing expectations of strong iPhone sales driven partly by new artificial intelligence features.
In contrast to the downturn in large-cap tech stocks, smaller companies rallied strongly during the session. The Russell 2000 index, which had notably underperformed the broader market earlier in the year, surged by 3.6% to its highest level since March 2022. This rally underscored investor optimism that rate cuts would create a more favorable economic environment for smaller firms, which are generally more sensitive to changes in interest rates.
Trading volume on U.S. exchanges was notably heavy, totaling 12.6 billion shares traded compared to the average of 11.5 billion shares over the previous 20 sessions. This heightened trading activity reflected the market’s heightened sensitivity to economic data releases and potential shifts in Federal Reserve policy.
Sector-wise, the S&P 500 Real Estate index saw a substantial 2.7% increase, significantly narrowing its year-to-date losses to just 1%. However, sectors such as communication services and information technology recorded declines of more than 2%, highlighting the varied reactions across different segments of the market to the inflation data and rate cut expectations.
Thursday’s trading session marked the end of a seven-day streak of record highs for the Nasdaq and a six-day streak for the S&P 500. It was also the Nasdaq’s most significant one-day percentage decline since April 30, highlighting the volatility and rapid shifts in market sentiment driven by economic data and Federal Reserve policy expectations.
Looking ahead, market participants are closely monitoring upcoming economic releases, including the Producer Price Index data scheduled for Friday. This report will provide further insights into inflationary pressures at the wholesale level, which could influence future Fed decisions. Additionally, investors are awaiting second-quarter earnings reports from major banks, which are expected to provide further clarity on the health of the economy and corporate profitability.
Overall, Thursday’s trading session underscored the market’s sensitivity to macroeconomic indicators and central bank policy, reflecting ongoing volatility and strategic adjustments among investors as they navigate shifting economic conditions and corporate earnings expectations.