Key Takeaways
- S&P 500 Falls After CPI Report, Breaking Six-Day Record Streak
- Russell 2000 And Bonds Rally, Tech And AI Stocks Decline
- CPI Report Boosts Hopes For September Interest Rate Cut
On Thursday, stocks rallied modestly in the wake of the most recent Consumer Price Index report which showed inflation is continuing to cool. But by mid-morning, a Mel Torme-like velvet fog had rolled in, turning the tide and sharply reversing stocks. For the day, the S&P 500 fell by 0.88% to close just over 5584, after getting as high as 5642. The lower close ended a streak of six consecutive record high closes. Tech stocks performed even worse, reversing by nearly 400 points and closing down 1.95%.
By contrast, the Russell 2000 posted its best day since November, gaining over 3.6% in what might be the beginning of a sector rotation. Bonds also staged a strong rally with yields on the 10-year dropping to 4.192%. We also saw gold and silver stage strong rallies with gold gaining 1.8% while silver added 2%.
Artificial Intelligence stocks were some of the biggest losers for the day. Nvidia fell over 5.5%. Arm Holdings dropped 7% and Dell Technologies dropped 3.45%. Meantime, shares of Tesla plummeted almost 8.5% on reports the company is postponing the release of its robotaxi. That drop halted an 11-day win streak that saw the stock surge 40%.
Earnings season also kicked off on Thursday with PepsiCo and Delta Air Lines reporting. Shares of PepsiCo closed relatively unchanged on the day; however, the company did report disappointing sales numbers. Global sales fell by 2% as customers cut back on spending. Delta Airlines sounded a similar tune. Summer travel projections came in weaker than expected despite what has been a strong summer travel season. This could be an interesting development if we see a continuation of weakening consumer spending, despite inflation coming down.
On Friday, Citibank, JP Morgan and Wells Fargo are all scheduled to release. JP Morgan saw investment banking fees jump 50%, helping the company to top expectations. Wells Fargo also posted a beat; however, expenses came in higher than expected. Shares of JP Morgan are indicated lower by 1.5% and Wells Fargo is down over 6%, both in premarket.
Turning to economic news, Thursday’s CPI report showed core prices increasing just 0.1% month-over-month. That news buoyed hopes for interest rate cuts this fall. Heading into Thursday’s report, there was a 75% chance of an interest rate cut in September, according to the CME Fed Watch Tool. Following the report, those probabilities increased to 93%. Hopes for a cut increased further this morning following the Producer Price Index. Despite coming in stronger than expected, chances of a rate cut in September now stand at 96%.
For Friday, I’m keeping a close eye on volatility. Despite the size of Thursday’s reversal, VIX only increased 0.5%. That is somewhat surprising and suggestive that the market didn’t take yesterday’s selloff seriously. If we are going to see continued selling, we’ll need to see volatility increase. As always, I would stick with your investing plan and long-term objectives.
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