It takes more than one day to know whether a rotation really has taken hold of the stock market. The stock market doesn’t look ready to provide many answers one day after tech stocks fell sharply as investors switched into small caps and other stocks that hadn’t been performing well this year.
S&P 500 futures were down 0.1%, while Dow Jones Industrial futures were little changed. Futures on the tech-heavy Nasdaq Composite were off 0.1%. The small-cap Russell 2000 was continuing its strong run, with the iShares Russell 2000 ETF up 1.1% in premarket trading.
Thursday’s rotation was spurred by a weaker-than-expected consumer inflation report, one that has the market betting that the Federal Reserve will cut interest rates in September. Stocks that benefit from lower rates—small companies, dividend payers, and banks—had strong days, while the overcrowded Magnificent Seven—Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, and Tesla—slid.
Will dip buying emerge? So far, it’s very muted. Nvidia stock is up 0.5% in premarket trading, for instance, while Meta was down 2.1% and Tesla has dropped 1.6% after getting cut to sell. Apple was slightly higher, Amazon.com, Microsoft, and Alphabet were little changed.
For investors who watched their stocks suffer while Big Tech ruled, though, it’s a moment of hope. “The Russell 2000 big rally yesterday and selloff in the biggest names wasn’t just a random event as the market got more comfortable with a September Fed rate cut,” writes The Boock Report’s Peter Boockvar, noting that lower rates actually make business easier for a number of the companies whose shares rallied. “Talking our book, I certainly hope a shift to value/small/mid has begun.”
Hope springs eternal.