Technical values are coming under pressure
Good Inflation Data Boosts Hopes for Rate Cut, Tech Stocks Suffer
The inflation data came in pleasantly, signs of an impending interest rate cut are piling up. However, investors on Wall Street prefer to keep cash when it comes to Tech stocks. Heavyweights like Apple and Nvidia are shedding weight. In contrast, gold is in demand.
The Wall Street couldn't hold its gains following the US inflation report for June. Heavy losses in large technology companies weighed on the US markets. The Dow Jones Industrial Average of blue-chip stocks closed almost unchanged at 39,753 points. The tech-heavy Nasdaq lost 1.9% to 18,283 points after a positive start. The broad-based S&P 500 shed 0.9% to 5,584 points.
Long faces were seen after a sell-off in stocks of companies like Apple, Microsoft, Alphabet, and Nvidia, which lost between 2.3% and 5.5%. Analysts also pointed to a surprisingly large increase in the US Small Cap Russell 2000 Index. "Is it a coincidence? It's too early to say for sure if something significant is brewing, but it could be the beginning of at least a short-term sector rotation," said Salah-Eddine Bouhmidi, a manager at broker IG.
Strategists Sameer Samana of US megabank Wells Fargo referred to the growing investor hope for imminent interest rate cuts in the US. "If the US Federal Reserve shifts from monetary tightening to easing, it means better times for the economy and a broader range of companies beyond the narrow technology sector that investors have been betting on so far."
Currency strategists, in Jerome Powell's view, will ultimately win the battle against high inflation. However, Powell recently told a Congressional hearing that "more good data" is needed. Many investors are betting on a rate turnaround in September, as signals of an economic slowdown are growing stronger. The price surge in the US is also abating further: The inflation rate fell to 3.0% in June from 3.3% in May. Economists had predicted a decline to 3.1%. "The inflation test seems to have passed," noted Timo Emden of research house Emden Research.
Disappointing Day for Airlines
Investors turned to gold, bonds, crude oil, and Bitcoin following the report. The US dollar, however, came under pressure. The Dollar Index lost around half a percent to 104.48 points. The Euro gained the same amount to 1.09 dollars.
The sector was hit hard by an disappointing forecast from Delta Airlines. The Atlanta-based airline's stocks fell around four percent. The stocks of rivals American Airlines and United Airlines lost 3.7% and 3.2%, respectively. Delta expects a normalized earnings per share of $1.70-$2.00 for the third quarter. Analysts had predicted $2.05. The background was a decline in industry prices. Experts attribute this to the airlines' overcapacity, which prevents them from fully benefiting from the recent surge in demand.
However, the shares of US megabank Citigroup came under pressure due to a fine. The papers lost nearly two percent. The US Federal Reserve and regulatory body OCC imposed a fine of $136 million on Citigroup. The reason was the "insufficient progress" of Citigroup in addressing certain 2020 issues related to data quality assurance.
Asked against it were Pfizer's papers with a surplus of about one percent. The pharmaceutical company is working on a new formulation of its weight loss medication Danuglipron.
Further news on today's stock market developments can be found here.
The Dow Jones Industrial Average, comprised of blue-chip stocks, demonstrated resilience despite the tech sector's struggles, maintaining its position at 39,753 points. In the context of the economy, many investors are hoping for an interest rate cut, as signaled by the improving inflation data.
Despite a surprisingly large increase in the US Small Cap Russell 2000 Index, tech-heavy stocks like Apple, Microsoft, Alphabet, and Nvidia suffered significant losses, negatively impacting the broader US markets.
