Big tech names pull back as small caps shine

The S&P 500 and Nasdaq both ended the day in the red as investors looked to rotate out of the big tech names and into small caps and property. The trigger for the moves was the June CPI print which came in with the lowest reading in more than three years.

The S&P 500 finished the day down 0.88 per cent after briefly touching new highs earlier in the day. The Nasdaq fell 1.95 per cent weighed down by a 5 per cent drop in Nvidia, after also hitting new record highs in early trading. The Dow Jones managed to close in the green and finished the day up 0.08 per cent.

The big news of the day was the surge in small caps, with the small-cap benchmark Russell 2000 Index rallying 3.6 per cent following the June CPI print which came in lower than expected which saw investor optimism rise around rate cuts later this year.

The June CPI fell 0.1 per cent from May, which pushed the annual inflation rate down to 3 per cent. Consensus numbers from Dow Jones showed economists expected a 0.1 per cent monthly increase and a 3.1 per cent annual rate. Core CPI, which excludes food and energy, came in at a 3.3 per cent annual rate, also lower than economists expected.

US Treasury yields fell following the CPI numbers with the US 10year treasury yield falling 7 basis points to 4.211 per cent. US 2year treasury yields fell over 11 basis points to 4.513 per cent.

The CME FedWatch Tool is now pointing to a 93 per cent chance of a September rate cut.

In company news, Nvidia shares declined by approximately 5 per cent on Thursday as investors shifted away from megacap tech stocks. The AI-focused company's stock was impacted early in the session due to a lower-than-expected June inflation report, which exerted pressure on the broader tech sector. Apple also slipped 2 per cent on the back of the Nasdaq’s woes.

Housing-related shares such as Home Depot and D.R. Horton jumped on hopes the lower rate environment would reignite the housing market.

US sectors were volatile following the CPI print. Real Estate was the best performer, closing 2.7 per cent higher, whilst Technology was the worst performer, closing 2.7 per cent lower.

Turning to the Australian landscape, BHP will suspend nickel mining in Western Australia, warning of a full-year loss on its nickel business due to a global oversupply driven by Chinese-backed companies in Indonesia and the Philippines. This decision puts thousands of jobs at risk and will lead to a $US300 million non-cash impairment charge. Despite significant investments to reorient production towards the battery and electric vehicle market, lower global nickel prices have resulted in ongoing negative cash flow for BHP's Western Australia Nickel operation.

Futures

The SPI futures are pointing to a 0.6 per cent gain.

Currency

One Australian dollar at 7.20am was buying 67.60 US cents.

Commodities

Gold has added 1.77 per cent. Silver has gained 2.12 per cent. Copper has dropped 2.21 per cent. Oil has risen 0.63 per cent.

Figures around the globe

European markets closed higher. London’s FTSE added 0.36 per cent, Frankfurt gained 0.69 per cent, and Paris closed 0.71 per cent higher.

Turning to Asian markets, Tokyo’s Nikkei added 0.94 per cent, Hong Kong’s Hang Seng gained 2.06 per cent while China’s Shanghai Composite closed 1.06 per cent higher.

Yesterday, the Australian share market closed 0.93 per cent higher at 7,889.64.

Ex-dividends
Prestal Holdings Ltd (ASX:PTL) is paying 7 cents fully franked

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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