Nasdaq, S&P 500 Pull Back Sharply After Reaching New Record Highs On Inflation Data

(RTTNews) - Stocks showed a substantial downturn over the course of the trading session on Thursday, with the Nasdaq and the S&P 500 pulling back sharply after reaching new record intraday highs in early trading.

The tech-heavy Nasdaq posted a particularly steep loss on the day, plunging 364.04 points or 2.0 percent to 18,283.41, while the S&P 500 slumped 49.37 points or 0.9 percent to 5,584.54.

The narrower Dow, on the other hand, spent most of the day lingering near the unchanged line before closing up 32.39 points or 0.1 percent at 39,753.85.

While optimism about the outlook for interest rates contributed to early strength on Wall Street, buying interest waned shortly after the start of trading.

Traders may have seen the increased confidence in a September rate cut as already priced into the markets following Wednesday's rally.

The subsequent sell-off came as traders took the opportunity to cash in on the recent strength in the markets, with some of the biggest tech winners of the year like AI darling Nvidia (NVDA) leading the pullback.

Nonetheless, the Federal Reserve is still seen as likely to lower rates in September after a report from the Labor Department showing showed prices in the U.S. unexpectedly edged slightly lower in the month of June.

The Labor Department said its consumer price index slipped by 0.1 percent in June after coming in unchanged in May. Economists had expected consumer prices to inch up by 0.1 percent.

The unexpected dip by consumer prices came as another steep drop by gasoline prices more than offset a continued increase in shelter costs.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent in June after rising by 0.2 percent in May. Core prices were expected to increase by another 0.2 percent.

The report also said the annual rate of consumer price growth slowed to 3.0 percent in June from 3.3 percent in May. Economists had expected the pace of price growth to decelerate to 3.1 percent.

The annual rate of core consumer price growth also slowed to 3.3 percent in June from 3.4 percent in May. The pace of growth was expected to remain unchanged.

"This is the kind of CPI report the Fed wants to see [to] feel more confident that inflation is headed back toward their target," said Bill Adams, Chief Economist for Comerica Bank. "The Fed targets 2% inflation by the personal consumption expenditures price index, which usually runs a little cooler than the CPI."

He added, "The CPI report won't be enough to convince the Fed to cut interest rates at their decision this month, but a rate cut at the following decision in September is quite likely."

According to CME Group's FedWatch Tool, the chances a rate cut in September have jumped to 84.6 percent following the report compared to 69.7 percent on Wednesday.

Sector News

Semiconductor stocks moved sharply lower over the course of the session, giving back ground following recent strength in the sector.

The Philadelphia Semiconductor Index plunged by 3.5 percent, pulling back off the record closing high set on Wednesday.

Software and computer hardware stocks also showed notable moves to the downside, contributing to the steep drop by the tech-heavy Nasdaq.

On the other hand, housing stocks saw substantial strength amid optimism about lower interest rates, resulting in a 5.7 percent spike by the Philadelphia Housing Sector Index.

Considerable strength also emerged among gold stocks, as reflected by the 2.8 percent surge by the NYSE Arca Gold Bugs Index. The strength in the sector came amid a sharp increase by the price of the precious metal

Interest rate-sensitive commercial real estate, telecom and utilities stocks also saw significant strength, while oil service, transportation and networking stocks also showed strong moves to the upside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan's Nikkei 225 Index advanced by 0.9 percent, while China's Shanghai Composite Index jumped by 1.1 percent and Hong Kong's Hang Seng Index spiked by 2.1 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index rose by 0.4 percent, the French CAC 40 Index and the German DAX Index both climbed by 0.7 percent.

In the bond market, treasuries moved sharply higher in reaction to the consumer price inflation data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slumped 8.7 basis points to 4.193 percent.

Looking Ahead

A report on producer price inflation is likely to attract attention on Thursday along with a report on consumer sentiment, which includes readings on inflation expectations.

Trading may also be impacted by reaction to earnings news from financial giants Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC).