Nasdaq 100, Dow Jones, S&P 500 News: Nvidia and Microsoft Tumble as Sector Rotation Begins

Market Rotation Intensifies Following Cool CPI Data

Unexpected inflation data triggered a significant market rotation, benefiting small-caps and housing-related shares while putting pressure on big tech stocks. The price action suggests traders are experiencing a “buy the rumor, sell the fact” situation after the CPI report came in lower than expected.

The S&P 500 retreated from its record high as investors reassessed their positions. Major tech companies bore the brunt of the sell-off, with Nvidia dropping nearly 3% despite being up 165% year-to-date. Microsoft and Meta also experienced notable declines, contributing to the Nasdaq Composite’s almost 2% fall.

Small-Caps and Housing Surge

In contrast, small-cap stocks emerged as clear winners, with the Russell 2000 Index jumping 3.3% and the iShares Russell 2000 ETF (IWM) rallying about 3%. Housing-related stocks saw substantial gains, with Home Depot rising 2%, Lowe’s adding 3%, and D.R. Horton surging nearly 5%. The SPDR S&P Homebuilders ETF climbed almost 4%, reflecting the sector’s strength.

Sector Performance and Early Earnings

Caterpillar showed strength among industrial stocks, while consumer stocks, which have lagged the S&P 500 this year, may benefit from potential rate cuts. In the cryptocurrency space, MicroStrategy, the largest corporate holder of bitcoin, announced a 10-for-1 stock split, rising about 5% in premarket trading.

However, early earnings reports revealed disappointments, with several companies missing revenue expectations. PepsiCo posted its second revenue miss in 6 years, Conagra reported its fourth revenue miss in five quarters, and Delta Air Lines saw key metrics fall short of analyst estimates.

Market Forecast

The unexpected inflation data and subsequent market reactions suggest a potentially bullish short-term outlook for small-caps, housing-related stocks, and sectors sensitive to interest rate cuts. However, the tech sector may face continued pressure as investors reassess valuations in light of changing interest rate expectations.

Traders should closely monitor upcoming earnings reports, particularly focusing on revenue performance, and stay alert to Fed communications for further market direction. The shifting landscape underscores the importance of diversification and adaptability in the current market environment.

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