Inflation Starts Behaving- US Market Wrap

Wall Street traders betting the Federal Reserve will be able to cut rates soon sent bond yields tumbling, while driving a big rotation out of the tech megacaps that have powered the bull market in stocks.

Further signs that inflation is slowing down fueled speculation the Fed will be able to move as early as September. Optimism over lower rates sparked a shift into riskier corners of the market, as money exited the long-favored safety trade of big tech. The Russell 2000 of smaller firms beat the Nasdaq 100 by 5.8 percentage points, file most since November 2020. While the S&P 500 fell nearly 1%, almost 400 of its shares were up.

An equal-weighted version of the S&P 500, where the likes of NVIDIA carry the same heft as Dollar Tree, jumped. That gauge is less sensitive to gains from the largest companies, providing a glimpse of hope that the rally will broaden out.

The S&P 500 fell to around 5,585. The Nasdaq 100 sank over 2%. A gauge of the “Magnificent Seven” megacaps saw its worst session since October 2022. Tesla sank 8.4% on news it’s postponing its planned robotaxi unveiling to October. The Russell 2000 climbed 3.6%, its best day in 2024. Homebuilders soared. Banks rose ahead of the start of the earnings season.

US 10-year yields slid eight basis points to 4.20%. The dollar saw its biggest drop since May. Japan’s currency chief stuck with his strategy of trying to keep market players in the dark over whether Tokyo stepped in to prop up the yen after sharp moves.