(Bloomberg) — Wall Street traders betting the Federal Reserve will be able to cut rates soon sent bond yields tumbling — while driving a big rotation out of the tech megacaps that have powered the bull market in stocks.
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Further signs that inflation is slowing down fueled speculation the Fed will be able to move as early as September. Optimism over lower rates sparked a shift into riskier corners of the market — as money exited the long-favored safety trade of big tech. The Russell 2000 of smaller firms beat the Nasdaq 100 by 5.5 percentage points — the most since November 2020. While the S&P 500 fell about 1%, more than 400 of its shares were up.
To Callie Cox at Ritholtz Wealth Management, today could be a turning point for markets. It’s also a good reminder that diversifying is important.
“The big tech trade is turning on itself, yet the rest of the market is finally stepping in,” Cox said. “The S&P 500 is down today, but this is the best kind of selloff you could hope for if you’re a long-term investor.”
An equal-weighted version of the S&P 500 — where the likes of Nvidia Corp. carry the same heft as Dollar Tree Inc. — jumped. That gauge is less sensitive to gains from the largest companies — providing a glimpse of hope that the rally will broaden out.
The S&P 500 fell to 5,580. The Nasdaq 100 sank over 2%. A Bloomberg gauge of the “Magnificent Seven” megacaps headed toward its biggest loss since July 2023. Tesla Inc. sank 8% on news it’s postponing its planned robotaxi unveiling to October. The Russell 2000 climbed 3.5% — set for its best day in 2024. Homebuilders soared. Banks rose ahead of the start of the earnings season.
US 10-year yields dropped 10 basis points to 4.19%. The dollar headed toward its biggest drop since May. Japan’s currency chief stuck with his strategy of trying to keep market players in the dark over whether Tokyo stepped in to prop up the yen after sharp moves.
To Dan Wantrobski at Janney Montgomery Scott, Thursday’s market action showcases a notable improvement in overall…
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