Traders work on the floor of the New York Stock Exchange on July 11, 2024.
Spencer Platt | Getty Images
The S&P 500 retreated from a record as investors rotated out of the big technology winners of the year such as Nvidia, Microsoft and Meta. The catalyst for the move was the lowest consumer price index reading in more than three years, which sent rates lower and investors into small caps and housing-related shares.
The S&P 500 fell 0.7%, retreating from a record it touched earlier in the session. The Nasdaq Composite pulled back 1.7%, after also hitting a new record earlier in the trading day. The Dow Jones Industrial Average added 21 points, or 0.05%. Nvidia, which is up 165% on the year, lost 4%.
S&P 500, 1-day
The small-cap benchmark Russell 2000 Index gained 3.3% as investors hoped for a Federal Reserve rate cut in September and an economic soft landing following the inflation data.
“It has been less of a divided market and more of a one-sided market for too long, by too few. The market has been very complacent, as represented by the implied volatility at lows and realized volatility in single digits, a contrarians’ red flag,” said Joseph Cusick, senior vice president and portfolio specialist at Calamos Investments. “The cooler-than-expected CPI print has nudged this market; now, let’s see what earnings will do.”
Housing-related shares such as Home Depot and D.R. Horton jumped on the hope lower rates would reignite a stalling housing market. Industrial stocks such as Caterpillar also gained.
The consumer price index fell 0.1% last month from May, bringing the annual inflation rate down to 3%. Economists surveyed by Dow Jones had expected a 0.1% monthly increase and a 3.1% annual rate. Core CPI, which excludes food and energy, came in at a 3.3% annual rate, also lower than economists expected.
Treasury yields fell following the CPI data as traders upped their bets for interest rate cuts.
Odds of a September rate cut rose to about 93% based on fed funds futures trading following the CPI data, according to the CME FedWatch Tool. Traders still see the Fed standing pat at its meeting later this month.
“Today’s market action is reflective of how far we’ve stretched the rubber band between the top few stocks we all know and everything else,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “If there is an area of the market that needs rate cuts, it’s small and medium sized businesses who have suffered the most because of the higher cost of capital.”