Nasdaq 100: Alphabet Slump Drags Tech Stocks Lower as Inflation Fuels Rate Cut Bets

Wall Street Mixed as Alphabet Weighs on Nasdaq; Inflation Signals Boost Rate Cut Bets

Wall Street’s major indexes showed mixed performance on Wednesday, driven by a notable decline in Alphabet’s shares and moderated inflation data that has strengthened expectations of a rate cut by the Federal Reserve next month. Alphabet, Google’s parent company, saw its stock drop 3.6% following reports that the U.S. Department of Justice may consider breaking up its online search business, a development that placed significant pressure on the tech-heavy Nasdaq.

Alphabet’s Drop Drags Down Nasdaq

The decline in Alphabet’s stock not only weighed on the Nasdaq but also led to a 1.3% drop in the communication services sector, making it the weakest among the S&P 500’s 11 major sectors. This dip offset gains in other tech stocks, which had recently helped the market recover from a sharp global sell-off earlier in the month. Despite this setback, both the S&P 500 and Nasdaq managed to post their fourth consecutive day of gains, buoyed by softer-than-expected inflation data released earlier this week.

Inflation Data Fuels Rate Cut Expectations

The latest inflation data showed that U.S. consumer prices rose moderately in July, with the annual inflation rate dipping below 3% for the first time since early 2021. This has kept alive the possibility of the Federal Reserve initiating a rate cut at its September meeting. Analysts, including Macquarie’s David Doyle, believe the data supports the case for a 25-basis point rate cut, with future adjustments depending on upcoming inflation and employment figures. Current market sentiment, as reflected by the CME FedWatch Tool, indicates a 55% probability of such a cut.

Market Sentiment Remains Cautious

Despite the moderated inflation figures, the market remains cautious, with volatility measures still reflecting underlying uncertainty. The Cboe Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” remained below its long-term average of 20 points, signaling a relatively calm market environment. However, the index’s recent spike to levels not seen since 2020 indicates that traders are still wary of potential market disruptions.

Short-Term Market Outlook

In the near term, market movements will likely be influenced by further economic data, particularly on inflation and employment. While the likelihood of a 25-basis point rate cut is increasing, any significant deviation in upcoming data could sway the Federal Reserve’s decision towards a more aggressive cut. Traders should remain vigilant, as volatility could resurface, especially with uncertainties surrounding major tech stocks like Alphabet.

Technical Analysis

E-mini Nasdaq-100 Index futures are edging lower on Wednesday after testing a short-term pivot at 19167.25. Trader reaction to this level will determine the direction of the tech-heavy index into the close.

Overcoming 19167.25 late in the session will signal the presence of buyers. This could trigger a surge into the 50-day moving average at 19628.75.

On the flipside, a sustained move under 19167.25 will signal the presence of sellers. This will put the short-term pivot at 18277.25 back on the radar, followed closely by the 200-day moving average at 18274.86.