Yesterday, Consumer Price Index (CPI) values were published, indicating a slowdown in the rate of inflation in the USA. According to ForexFactory:
→ CPI month-on-month: actual = -0.1%, forecast = 0.1%, previous month = 0.0%;
→ CPI year-on-year: actual = 3.0%, forecast = 3.1%, previous month = 3.3%.
The data confirming the slowdown in inflation raised expectations that the Federal Reserve might lower interest rates as early as September. But why did the Nasdaq 100 (US Tech 100 mini on FXOpen) drop then? Yesterday, the tech stock index fell by over 2.1%, marking its worst day since early May.
The reason lies in rotation. Investors seem to have shifted their focus from the highly inflated tech stocks since the start of 2024 to other sectors. Approximately 400 companies in the S&P 500 index (US SPX 500 mini on FXOpen) showed growth. Meanwhile, the Dow Jones Industrial Average (Wall Street 30 mini on FXOpen) closed in the green yesterday.
Bloomberg reports that Kelly Cox from Ritholtz Wealth Management believes this day could be a turning point for the markets. It also serves as a good reminder of the importance of diversification.
One of the drivers of yesterday’s decline was NVDA shares, which fell by more than 5% in a day (we wrote about the bearish behaviour of Nvidia’s price and volumes just the day before).
What’s next?
The equal-weighted version of the S&P 500, where stocks like Nvidia have the same weight as Dollar Tree Inc., rose yesterday. This version of the index is less sensitive to the influence of large tech companies, making a case for the rally expanding to other stocks.
Technical analysis of the Nasdaq 100 (US Tech 100 mini on FXOpen) chart gives bulls some hope, as if the price continues to fall, it will encounter a series of supports:
→ from the lower boundary of the green channel;
→ from the psychological level of 20,000;
→ from the median line of the blue channel.
It is possible that the bearish momentum seen yesterday may dissipate when it meets these supports. However, it is unlikely to restore the attractiveness of tech stocks to the level they had before yesterday.
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