Market Volatility: Inflation Eases, Stocks Sway

The Nasdaq and S&P 500 dipped from record highs as megacap stocks, including Apple and Microsoft, slumped. CPI numbers showed easing inflation in June, raising hopes for a Federal Reserve rate cut in September. Smaller companies saw gains, with the Russell 2000 rising 3.1% amid economic optimism.

The Nasdaq and the S&P 500 fell from record highs on Thursday, pressured by megacap stocks, as investors shifted towards small-caps following a softer-than-expected inflation report. The Labor Department revealed that U.S. consumer prices fell unexpectedly, marking the smallest annual increase in a year, reinforcing the view that disinflation was making a comeback.

This trend cheered Federal Reserve policymakers, who are looking for signs that inflation is returning to their 2% goal, leading traders to increasingly bet on a rate cut in September. Despite the good news on inflation, major tech stocks plunged, with Apple, Microsoft, Alphabet, and Nvidia all falling by between 2.6% and 4.9%.

The Russell 2000, which has lagged behind the benchmark index this year, rose 3.1% to a three-month high on hopes that rate cuts would benefit smaller firms. Wall Street's rally has mainly been driven by its largest stocks, prompting questions about the sustainability of such narrow gains.