NEWS

Major rotation shakes up US Markets

U.S. stocks experienced a significant one-day rotation after a cooler June inflation report. The Russell 2000 Smallcap index, which had been underperforming, surged over 3.5%, dramatically outperforming its year-to-date performance. 🔥

In contrast, the Nasdaq Composite, which had enjoyed a seven-day winning streak and record highs throughout July, plummeted more than 400 points, dropping over 2% by midday. The S&P 500 also declined, falling over 60 points from its intraday highs 🤯

The CPI report heightened expectations for a 25-basis point rate cut from the Federal Reserve in September, boosting interest rate-sensitive sectors such as homebuilders, finance, solar, and utilities.

Anyhow, look below, these were the market close for the main indices and most fancy assets:

STOCKS

Smallcaps Surge as Tech Takes a Tumble

On the New York Stock Exchange, market breadth was overwhelmingly positive, with advancers leading decliners by a 6:1 margin, driven by the strength in small-cap stocks.

The Dow Transports index rose around 2% despite airline weakness after Delta's results, as all other components such as Uber, Ryder, UPS, and FedEx moved higher.

The Philly semiconductor index, which reached an all-time high shortly after the market opened, fell over 3% before paring some losses.

This rotation saw investors dump tech giants like NVIDIA, ARM, Apple, Amazon, Meta, and Microsoft, while the Russell 2000 Smallcap surged.

OTHER ASSETS

Gold Glitters, Oil Climbs, and the Dollar Dips

Commodities and currencies also saw significant movements.

Oil prices edged higher, with WTI crude settling at $82.62 per barrel and Brent crude at $85.40 per barrel.

Natural gas prices fell to over two-month lows.

Gold prices surged by $42.20, closing at $2,421.90 an ounce, supported by a weaker dollar and falling Treasury yields.

The U.S. dollar declined, with the dollar index (DXY) falling 0.4%, and the dollar/yen pair tumbling over 2% before recovering slightly. The euro saw modest gains.

The rally in precious metals was driven by growing expectations of Federal Reserve rate cuts later in the year.

FOLLOWING DAYS

Eyes on the Fed: Rate Cut Speculations Soar

Looking ahead, the market's focus will likely remain on economic data and Federal Reserve signals. The favorable CPI report has set the stage for potential interest rate cuts, which could continue to support sectors sensitive to borrowing costs, such as homebuilders and utilities. However, investors should be cautious of continued volatility in tech stocks as the rotation into small-cap stocks might persist.

Additionally, the upcoming earnings season, especially for major banks like Citi, JPMorgan, and Wells Fargo, will be critical in shaping market sentiment.

As the Federal Reserve’s next moves become clearer, sectors such as solar and finance may continue to see significant gains or adjustments based on interest rate expectations.