On Thursday, the stock market experienced a significant decline, with the Nasdaq and S&P 500 retreating sharply after hitting new intraday highs earlier in the trading session. The tech-heavy Nasdaq tumbled 364.04 points, or 2.0%, closing at 18,283.41, while the S&P 500 fell 49.37 points, or 0.9%, to settle at 5,584.54.
Conversely, the narrower Dow hovered near the unchanged line for most of the day before finishing up 32.39 points, or 0.1%, at 39,753.85.
Initially, optimism regarding interest rates bolstered the market, but buying interest tapered off shortly after trading commenced. Market participants perceived the anticipated September rate cut as already priced in, following Wednesday's rally.
The sell-off ensued as traders capitalized on the recent market strength, with some of the year's biggest tech winners, such as Nvidia (NVDA), leading the decline. Despite this, the Federal Reserve is still expected to lower rates in September, bolstered by a Labor Department report indicating a slight, unexpected decline in U.S. consumer prices in June.
The Labor Department revealed that the consumer price index dipped by 0.1% in June after remaining unchanged in May, against economists' expectations of a 0.1% increase. This unexpected drop was driven by a significant decrease in gasoline prices, which offset rising shelter costs.
Excluding food and energy prices, core consumer prices edged up by 0.1% in June, following a 0.2% increase in May. Core prices were anticipated to rise by another 0.2%.
Additionally, the annual rate of consumer price growth slowed to 3.0% in June from 3.3% in May, with economists expecting a deceleration to 3.1%. Core consumer price growth also eased to 3.3% in June from 3.4% in May, while remaining unchanged was anticipated.
"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. "However, this report alone won't prompt the Fed to cut interest rates this month, but a September rate cut is quite likely."
Following the report, CME Group's FedWatch Tool indicated an increase in the likelihood of a September rate cut to 84.6%, up from 69.7% on Wednesday.
**Sector News**
Semiconductor stocks took a sharp downturn, erasing recent gains, with the Philadelphia Semiconductor Index dropping by 3.5% from its record high on Wednesday. Software and computer hardware stocks also showed significant declines, contributing to the Nasdaq's substantial loss.
In contrast, housing stocks saw significant gains amid optimism over lower interest rates, with the Philadelphia Housing Sector Index spiking by 5.7%. Gold stocks also experienced notable strength, as reflected by a 2.8% surge in the NYSE Arca Gold Bugs Index, amid a sharp rise in gold prices.
Interest rate-sensitive sectors like commercial real estate, telecom, and utilities also showed notable strength, while oil service, transportation, and networking stocks posted strong gains as well.
**Other Markets**
Asian markets largely traded higher on Thursday, with Japan's Nikkei 225 advancing by 0.9%, China's Shanghai Composite rising by 1.1%, and Hong Kong's Hang Seng Index spiking by 2.1%.
European markets also moved higher, with the U.K.'s FTSE 100 Index up by 0.4%, and both France's CAC 40 Index and Germany's DAX Index climbing by 0.7%.
In the bond market, treasuries soared in response to the consumer price inflation data, causing the yield on the benchmark ten-year note to fall by 8.7 basis points, settling at 4.193%.
**Looking Ahead**
On Thursday, a report on producer price inflation is expected to draw attention alongside a report on consumer sentiment, which includes insights on inflation expectations. Additionally, trading may be influenced by reactions to earnings announcements from financial giants Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC).
