Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, June 24, 2024.
Brendan McDermid | Reuters
Wall Street saw a dramatic shift in market trends on Thursday, with stocks gaining and losing on the day. It may be just what the general meeting needs to continue.
At Russell 2000 The small-cap index, which has been struggling to find its footing all year, jumped more than 3% there. At the same time, every stock called “Magnficient 7” fell, including a decline of almost 5% for Nvidia and 2% drop for Applewhich dragged down the two S&P 500 and Nasdaq Composite.
Bespoke Investment Group shared two statistics on X’s social media site to demonstrate how rare this type of split is.
- Thursday was just the second day since 1979 that the Russell 2000 rose more than 3% while the S&P 500 declined.
- The Nasdaq Composite underperformed the Russell 2000 by 4.9 percentage points, the second-largest daily gap on record. Another time came in November 2020, after Pfizer showed positive results from the Covid-19 vaccine trial.
And while the major market averages and many individual 401k accounts may show a decline for the day, this odd result could be a positive sign for the market. Much of the recent rally has been fueled by big tech companies, targeting investment professionals worried about a narrow group of stock market leaders.
“Today is an important day,” said Ed Yardeni of Yardeni Research on CNBC’s “Closing Bell. “This is the day that investors begin to roll out of the Magnificent 7 into other markets. I don’t think it’s going to continue to drag the S&P 500 down — I think there’s going to be enough money to keep the major stocks that have done well, but I think we’re going to see more gains in the S&P 493, as well as in the small and mid-caps,” he said.
The split trade came after the June report for the consumer price index early Thursday showed headline inflation declined last month and is now up about 3% over the past year. That bolstered the belief that the Federal Reserve will start to cut interest rates as soon as September. Fed Chairman Jerome Powell indicated in Congressional testimony this week that the central bank knows that too high rates can hurt the economy.
“Investors are spinning: They’re jumping from large-cap tech lily pads to mid- and small-cap pads, along with real estate,” Sam Stovall, chief investment strategist at CFRA Research, told CNBC. “They have been waiting may not guarantee, but certainly confirm that the Fed will begin to reduce interest rates, and will do so not as a reaction to the recession.”
Activity in the bond market supports this idea. Yields on US Treasurys fell across the board, meaning government bond prices were rallying.
“You have positive CPI on the back of Powell being a bit dovish,” Ross Mayfield, investment strategy analyst at Baird, told CNBC. “Rates are coming down big, and you have a kind of rotational trade. But the problem with markets that are so concentrated in big tech is that rotational trades can look like negative surface levels. And I think we’re seeing some of that today,” he said.
Of course, there have also been signs in recent months that the US economy has weakened. A slow growth or recession environment will be difficult for small cap stocks, which tend to be more economically sensitive and domestically oriented than large companies.
– CNBC’s Sarah Min and Alex Harring contributed reporting