S&P regains yesterday's losses
US stock indices were rallying sharply into the weekend. This followed yesterday’s extraordinary session which saw large losses for tech stocks, but a huge shift into domestically focused mid-caps. This change in fortunes was borne out by the closing numbers which saw the NASDAQ 100 end 2% lower, while the Russell 2000 jumped 3.6%. The tech-led sell-off came just a day after the NASDAQ and S&P 500 closed out at fresh all-time highs. What was particularly interesting is that it came as the latest US inflation update showed Core CPI, which excludes food and energy, at its lowest level since April 2021. Headline CPI also fell unexpectedly, and is now back to 3.0%, where it was one year ago. These latest releases reinforce the improvement seen in Core PCE just a few weeks ago. This fell to 2.6% and is closing in on the Fed’s 2% inflation target. Bond prices soared as yields fell sharply, and the probability of a 25 basis point rate cut in September shot up. In fact, the CME’s FedWatch Tool is now pricing in a decent chance of three 25 basis point rate cuts before year-end. All well and good. After all, the risk for equities was that inflation came in hotter-than-expected, wasn’t it? Apparently not. After a respectful pause, investors dumped all those tech high-flyers together with anything that had rallied recently on an association with generative AI. But this wasn’t an all-out equity market rout. Instead, money poured into the US mid-caps. This reallocation meant that volatility, as measured by the VIX, despite a largish high-low swing, ended the day little-changed. The question now is whether this rotation is set to continue, or if yesterday’s tech sell-off has blown enough froth off the sector to tempt in fresh buyers? There are certainly no signs of panic, although yesterday’s price action could still prove to be the opening shot in a round of profit-taking that sees the major indices pull back significantly.
The S&P is currently trading just shy of 5,640 – just above its record closing high from Wednesday. Let’s see if it can push on from here, or if turns lower as we head into the weekend. Yesterday’s CPI triggered an unusual move across US indices. Could the second quarter earnings season prove to be the catalyst for a bigger, and more protracted reversal?
The S&P is currently trading just shy of 5,640 – just above its record closing high from Wednesday. Let’s see if it can push on from here, or if turns lower as we head into the weekend. Yesterday’s CPI triggered an unusual move across US indices. Could the second quarter earnings season prove to be the catalyst for a bigger, and more protracted reversal?
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