[New York Stock Market] Mixed Close Despite June Inflation Slowdown... Nasdaq Down 2% Due to Sharp Decline in Tech Stocks

June CPI rises 3% YoY, 'below expectations'
Sharp drop in government bond yields amid September rate cut outlook
Big Tech stocks fall in unison... rotation from tech to small and mid-cap stocks

The three major indices of the U.S. New York stock market closed mixed on the 11th (local time). Although the consumer price index (CPI) inflation rate slowed for three consecutive months last month, fueling expectations of an interest rate cut in September, the Nasdaq index fell nearly 2% as the large tech stocks known as the 'Magnificent 7' plunged sharply. Analysts suggest that investors are taking profits by selling the previously soaring tech stocks and rotating into small- and mid-cap stocks, dividend stocks, and value stocks.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 32.39 points (0.08%) from the previous trading day to close at 39,753.75. The large-cap-focused S&P 500 index fell 49.37 points (0.88%) to 5,584.54, and the tech-heavy Nasdaq index dropped 364.04 points (1.95%) to close at 18,283.41.

By individual stocks, tech stocks plunged. U.S. electric vehicle maker Tesla fell 8.44% following a Bloomberg report that the unveiling of its 'Robotaxi' has been delayed from August to October. Nvidia dropped 5.75%. Meta Platforms, Facebook's parent company, declined 4.11%. Apple fell 2.32%, while Microsoft (MS) and Amazon dropped 2.38% and 2.37%, respectively. Alphabet, Google's parent company, declined 2.78%.

Peter Bookbauer, Chief Investment Officer (CIO) of Blickly Financial Group, said, "The market movement today shows how much the rubber band between some of the top stocks we know and all other stocks has been stretched." He analyzed, "If there is a sector in the market that needs a rate cut, it would be small and medium-sized enterprises that have suffered from rising capital costs."

With growing expectations of a rate cut in September, housing-related stocks rose. Home Depot, the largest U.S. home improvement retailer, gained 2.79%, and U.S. homebuilder D.R. Horton jumped 7.26%. PepsiCo, which reported earnings below market expectations, initially fell but then reversed to close up 0.22%.

The June CPI released that day showed a 3% increase year-over-year, continuing a three-month slowdown and signaling disinflation (a slowdown in inflation). Both the forecast (3.1%) and the previous month (3.3%) figures were below expectations. Month-over-month, it turned down by 0.1%, also below the forecast (0.1% increase) and the previous month (0%). The core CPI, which excludes volatile energy and food prices and shows the underlying inflation trend, rose 0.1% month-over-month and 3.3% year-over-year. The year-over-year increase was the lowest in three consecutive months since April 2021. Both the market estimates (0.2% and 3.4%) and the previous month (0.2% and 3.4%) figures were all underperformed.

Gasoline prices fell 3.8% month-over-month, and the moderation in housing cost increases contributed to the CPI slowdown. In particular, housing costs, which had persistently been a drag, rose only 0.2% from the previous month, marking the smallest increase in two years and ten months since August 2021. Prices for new cars, used cars, and transportation services also declined.

Following the CPI release last month, expectations for a rate cut in September quickly spread in the market, causing bond yields to fall sharply. The U.S. 10-year Treasury yield, a global benchmark for bond yields, dropped 7 basis points (bp) (1bp = 0.01 percentage point) from the previous trading day to 4.2%, while the 2-year Treasury yield, sensitive to monetary policy, fell 12bp to 4.51%.

Investors are treating the September rate cut as a foregone conclusion. According to the Chicago Mercantile Exchange (CME) FedWatch on that day, the federal funds futures market reflected a 92.7% probability that the Fed will cut rates by at least 0.25 percentage points at the September Federal Open Market Committee (FOMC) meeting. This is a nearly 20 percentage point jump from 73.4% the previous day.

Skyler Weinand, Chief Investment Officer (CIO) of Regan Capital, said, "With another good CPI indicator, the door to a rate cut as early as September has opened," and predicted, "If inflation data continues to be cooperative, there is a possibility of another cut in December."

The weekly initial jobless claims released that day showed no signs of labor market cooling, unlike the previous week. According to the Department of Labor, initial jobless claims for the week of June 30 to July 7 totaled 222,000, the lowest level since the end of May, below both expert estimates (236,000) and the revised figure for the previous week (239,000). Continuing claims, which count those claiming unemployment benefits for at least two weeks, stood at 1,852,000 for the week of June 23-29. This was below both market expectations (1.86 million) and the revised figure for the previous week (1.856 million). Although the previous week (June 16-22) saw a nine-week consecutive increase, reaching the highest level in 31 months, the upward trend has now eased.

International oil prices rose on growing expectations of a rate cut. West Texas Intermediate (WTI) crude oil increased $0.52 (0.6%) from the previous trading day to close at $82.62 per barrel, while Brent crude, the global benchmark, rose $0.32 (0.4%) to close at $85.40.