Nasdaq 100, Dow Jones, S&P 500: Tech Leads 2024 with AI Gains, Small-Caps Lag

U.S. Stocks Steady as Traders Evaluate Inflation Data

U.S. stocks remained mostly unchanged on Friday as traders assessed the latest personal consumption expenditures (PCE) price index data, which indicated slowing inflation, and better-than-expected consumer sentiment figures. The S&P 500 edged up 0.05%, the Nasdaq Composite traded slightly lower, and the Dow Jones Industrial Average hovered near the flatline. Despite the minor fluctuations, both the S&P 500 and Nasdaq hit new all-time intraday highs earlier in the session.

At 16:40 GMT, the Dow Jones Industrial Average is trading 39156.25, down 7.81 or -0.02%. The S&P 500 Index is at 5477.07, down 5.80 or -0.11% and the Nasdaq 100 Index is trading 17800.83, down 57.85 or -0.32%.

Inflation Data Shows Positive Trends

Inflation in May reached its lowest annual rate in more than three years, according to the Commerce Department. The Core PCE, which excludes volatile food and energy prices, rose just 0.1% for the month and 2.6% year-over-year, aligning with Dow Jones consensus estimates. The headline PCE, including food and energy, was flat for the month and up 2.6% annually, also meeting expectations. These figures are encouraging for the market, with experts like David Donabedian from CIBC Private Wealth U.S. labeling the report as nearly perfect from a market perspective.

Consumer Sentiment and Inflation Outlook

The University of Michigan consumer sentiment index for June rose to 68.2, higher than expected, with the one-year inflation outlook falling to 3% from May’s 3.3%. These improved sentiment figures, coupled with steady inflation data, have led traders to anticipate potential interest rate cuts by the Federal Reserve. The CME Group FedWatch Tool indicates a 59.5% chance of a rate reduction at the central bank’s September meeting.

Technology Sector Leads Market Gains

The first half of 2024 has been strong for the stock market, with the technology-heavy Nasdaq leading the way, up about 20% driven by the AI boom. The S&P 500 has gained more than 15%, while the Dow Jones has lagged, rising just 4%. The Dow’s underperformance is partly due to a unique pullback in the second quarter, while the S&P 500 and Nasdaq showed stronger gains. In June, the Nasdaq rallied over 6%, the S&P 500 over 4%, and the Dow 1%.

Small-Cap Stocks Lag Behind

Small-cap stocks have significantly underperformed the broader market. The Russell 2000 index declined by 0.8% in June and more than 3% in the second quarter, showing only a modest year-to-date gain of less than 1.5%. This is in stark contrast to the S&P 500’s robust performance, which climbed about 4.5% in June and nearly 5% for the quarter, up more than 15% for the year.

Market Forecast: Mixed Outlook for Second Half

As the market wraps up the first half of 2024, analysts have varying expectations for the remainder of the year. Some, like Evercore ISI’s Julian Emanuel, are optimistic, projecting the S&P 500 could reach 6,000, roughly 9% above current levels.

Others, such as JPMorgan’s Dubravko Lakos-Bujas, foresee a significant pullback to 4,200, citing concerns over poor market breadth and waning momentum. While the market has shown resilience, factors such as upcoming elections, the timing of rate cuts, and potential softening in consumer demand could introduce volatility.

Overall, while the first half of the year has been robust, especially for tech stocks, traders should prepare for potential fluctuations and varied market performance in the months ahead.

Technical Analysis