By Noel Randewich and Lisa Pauline Mattackal
(Reuters) -The Nasdaq and the tumbled from record highs on Thursday, hit by losses in Nvidia (NASDAQ:) and Tesla (NASDAQ:) as investors rotated into smaller companies after softer-than-expected inflation data fed hopes the Federal Reserve will cut interest rates in September.
A Labor Department report showed U.S. consumer prices fell unexpectedly in June and the annual increase was the smallest in a year, drawing the Fed closer a September rate cut.
Interest rates futures suggest traders see an over 90% chance the Fed will cut rates by its September meeting, up from about 74% on Wednesday, according to CME Group’s (NASDAQ:) Fedwatch.
Despite signs of receding inflation, megacap stocks dropped.
Tesla tumbled 6.5% after Bloomberg News reported the company is delaying the launch of robotaxi by about two months to October.
Apple (NASDAQ:) fell 2.4% after hitting a record high on Wednesday. BofA Global Markets raised its price target for Apple, saying it expects strong iPhone sales driven in part by new AI features.
While sky-high tech-related stocks fell on Thursday, shares of smaller companies rallied.
The small cap , which has significantly lagged the benchmark index in 2024, jumped 3.4% to an over three-month high, with investors betting rate cuts would improve conditions for smaller companies.
“What I think investors now believe is that the Fed is ready to start to cut interest rates. And so they are saying, ‘That’s good enough for me. I don’t have to wait for them to actually do it’,” said Sam Stovall, chief investment strategist at CFRA Research.
The S&P 500 real Estate index jumped 2.8%, trimming its year-to-date losses to 1%. The communication services and information technology indexes each lost almost 3%.
Delta Air Lines (NYSE:) slumped almost 6%, on track for its biggest one-day fall since mid-January, after forecasting lower-than-expected profits in the current quarter.
Other major airline stocks also fell, with an index of S&P 500 passenger airline companies down 4%.
“This might be a place where consumers are getting pinched by inflation. That’s showing up in discretionary funding on things like air tickets,” said Scott Helfstein, head of investment strategy at Global X.
Investors are awaiting Producer Price Index data on Friday for insights into the inflation trajectory, along with second-quarter earnings from big banks.
The S&P 500 was down 0.99% at 5,578.28 points.
The Nasdaq declined 2.15% to 18,246.96 points, while the was up 0.15% at 39,782.75 points.
Citigroup slipped 2.3% after U.S. bank regulators fined the lender $136 million.
Conagra Brands (NYSE:) fell 1.7% after the packaged foods maker forecast annual revenue and profit below estimates.
Advancing issues outnumbered falling ones within the S&P 500 by a 3.8-to-one ratio.
The S&P 500 posted 49 new highs and 2 new lows; the Nasdaq recorded 132 new highs and 44 new lows.