Signs of falling U.S. inflation on Wednesday and growing hopes for interest rate cuts from the Federal Reserve could be a positive signal for large swathes of the stock market that have languished in a rally led by Big Tech.
Benign consumer price data fueled bets the Fed will lower rates in coming months and sent the S&P 500 to fresh highs. Stocks held onto gains after the Federal Reserve left interest rates unchanged and Fed Chairman Jerome Powell delivered an encouraging assessment of the economy.
Some investors believe expectations of cooling inflation andlooser monetary policy could boost areas of the market that have been hurt by higher rates, including shares of small caps and financial companies. That could ease worries about the risks of a market rally that has been concentrated in a cluster of giant tech stocks.
Though the S&P 500 is up about 14% this year, about 60% of the return has been driven by six companies whose shares have an outsized weighting in the index: Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOGL), and Amazon.com (NASDAQ:AMZN), data from S&P Dow Jones Indices showed.
If Wednesday’s CPI report is the start of improved data that raises chances of rate cuts, “that can bring the whole yieldcurve lower, benefiting some of the areas that have beensensitive to the upside in yields,” said Angelo Kourkafas, senior investment strategist at Edward Jones, including small caps and some economically sensitive stocks such as financials and industrials.
