Nasdaq: Tech Stocks Rally as Inflation Data Looms, Fed Rate Cut in Focus

Major Indices Mixed Ahead of Key Inflation Data

The U.S. stock market is mixed on Tuesday, with the Nasdaq posting gains while the Dow and S&P 500 edged lower. Investors remain focused on critical inflation data due later this week, which could offer insight into the Federal Reserve’s expected interest rate cut on September 18. The inflation reports are poised to influence the broader market outlook, particularly in light of recent volatility.

At 14:55 GMT, the Dow Jones Industrial Average is trading 40616.89, down 212.70 or -0.52%. The S&P 500 Index is at 5469.42, down 1.63 or -0.03% and the Nasdaq Composite is trading 16911.64, up 27.04 or +0.16%.

Tech Sector Sees Mixed Results

The technology sector had notable winners and losers. Apple Inc. (AAPL) dropped 1.6%, struggling after an EU ruling required the company to pay $14.34 billion in back taxes to Ireland. Further pressure came from China’s Huawei, which launched a tri-fold smartphone, just hours after Apple’s newest iPhone release.

Meanwhile, Oracle (ORCL) surged 11.2% after exceeding quarterly earnings estimates and announcing a partnership with Amazon Web Services. Microsoft (MSFT) and Nvidia (NVDA) also posted gains of 2.4% and 0.6%, respectively, lifting the sector despite broader uncertainties.

Hewlett Packard Enterprise (HPE), however, weighed on the tech sector, falling 7.8% after it announced a $1.35 billion stock offering to fund its acquisition of Juniper Networks. The move raised concerns over shareholder dilution, putting further pressure on the stock.

Consumer Discretionary Stocks Lead the Gains

The consumer discretionary sector outperformed other sectors, driven by Tesla’s (TSLA) 2.2% rise. The electric vehicle manufacturer led gains among megacap stocks, contributing to the sector’s overall strength. Amazon (AMZN) also rallied 2.4%, boosting optimism about continued growth in consumer demand. These companies are likely to benefit if the Federal Reserve signals dovish policies in response to inflation data, which could support higher consumer spending and growth prospects.

Communication Services Sector Strengthens

In the communication services sector, key stocks rallied as well. Alphabet (GOOGL) and Meta Platforms (META) gained as part of a broader recovery in growth stocks. The sector’s rise reflects investor optimism around the impact of potential Federal Reserve rate cuts, which could benefit companies heavily reliant on advertising revenues and digital services.

Investor Focus on Inflation Data and Treasury Yields

Treasury yields remained stable after a volatile week driven by disappointing labor market data. Investors are now closely watching August’s Consumer Price Index (CPI) report due on Wednesday, which is expected to show a slight moderation to 2.6% year-on-year. This will be followed by Thursday’s Producer Price Index (PPI) data, providing further insight into inflationary pressures.

Market participants are nearly certain that the Federal Reserve will begin easing policy in September, with a 73% chance of a 25-basis-point cut, according to the CME’s FedWatch Tool. However, some analysts argue that a larger 50-basis-point cut might be necessary to counteract recession fears if inflation data surprises on the low side.

Market Forecast

In the short term, markets are likely to remain volatile, hinging on the CPI and PPI reports. A softer-than-expected inflation reading could boost growth sectors such as technology and consumer discretionary, as lower inflation would reinforce expectations for Fed rate cuts. However, if inflation runs higher than expected, it could trigger a selloff in risk assets as fears of more aggressive monetary tightening resurface. Overall, with a 25-basis-point cut priced in, the outlook is cautiously bullish, though upcoming data will be key to determining market direction.

Technically, the E-mini Nasdaq-100 Index is in a good position to strengthen over the near-term after crossing to the strong side of the 200-day moving average at 18572.74.

Bullish trend investors see the 200-day moving average as a value level and tend to increase their buying as the market approaches it. If this creates enough upside momentum then look for prices to surge into the important pivot at 19167.50 over the near-term.

A failure to hold the 200-day MA will be a sign of weakness. This would put the support zone at 17858.50 to 17198.25 on the radar.