Tech drags indexes down, small caps rise after inflation data fuels interest rate cuts

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

• Inflation was lower than expected last month at 3% on an annual basis.

• Investors seemed to see this as a signal to exit some of the biggest winners and buy laggards such as small caps.

US stocks fell on Thursday, pressured by technology names such as Nvidia and Microsoft, while 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 rose 3.6% on the session. Smaller companies, which often have higher debt loads and are therefore more sensitive to interest rates, have struggled as the Federal Reserve has kept them higher to combat inflation.

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

“[Rate cuts] support our expectation that the equity market rally will continue and broaden from the Magnificent-7,” market veteran Ed Yardeni said in a note.[Small and mid-cap stocks] have been pressured by high interest rates and have remained relatively cheap as the Fed tightened monetary policy.”

Here’s where the US indexes stood at 4pm on Wednesday:

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

Commentators were quick to call a rate cut in September almost certain, and the chances of a cut at this month’s policy meeting also increased slightly.

‘An interest rate cut in September should be a foregone conclusion at this point. In the second quarter, the run rate for headline inflation in the US was just 1.1%, while core inflation was 2.1%, making it increasingly clear that the first quarter was on the upside. surprises were abnormal,” said Ron Temple, Lazard’s chief market strategist.

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

Here’s what else happened today:

The story continues

In commodities, bonds and crypto:

• Oil futures rose. West Texas average Crude oil rose 1% to $82.98 a barrel. Brent crude oilthe international benchmark, rose 0.7% to $85.71 per barrel.

• Gold rose 1.8% to $2,422 an ounce.

• The yield on ten-year government bonds fell by seven basis points to 4.205%.

• Bitcoin was about flat at $57,515.

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