Market change: S&P 500 retreats, small caps and housing stocks rise

The S&P 500 fell 0.4%, retreating from a record high reached earlier in the session. The Nasdaq Composite also retreated 1.1% after hitting a new record high earlier in the trading day. In contrast, the Dow Jones Industrial Average added 132 points, marking an increase of 0.3%. Nvidia, a company that has seen a 165% increase this year, suffered a loss of almost 3%.

Investors began pulling away from the year's big tech winners like Nvidia, Microsoft and Meta as the S&P 500 retreated from its all-time high. This shift was triggered by the lowest consumer price index (CPI) reading in more than three years, which led to lower rates and a shift by investors to small-cap and housing-related stocks .

The benchmark small-cap index, the Russell 2000 Index, posted a 3.3% gain as investors anticipated a Federal Reserve rate cut in September and a soft economic landing after data from 'inflation. Housing-related stocks including Home Depot and DR Horton saw a boost on hopes that lower rates would revive a slowing housing market. Industrial stocks, such as Caterpillar, also saw gains.

The consumer price index fell 0.1% last month from May, bringing the annual inflation rate down to 3%. That was lower than the 0.1% monthly increase and the 3.1% annual rate that economists had forecast. Core CPI, which excludes food and energy, came in at an annual rate of 3.3%, also lower than expected.

After the CPI data, Treasury yields fell as traders increased their bets on lower interest rates. “With another good CPI print under its belt, the window opens for the Federal Reserve to cut interest rates as early as September, and potentially again in December, assuming inflation data continues to cooperate” , said Skyler Weinand, chief investment officer at Regan Capital.

Odds of a September rate cut rose to more than 80% in fed funds futures trading following the CPI data. However, traders expect the Fed to maintain its current stance at its meeting later this month. Investors also started pulling some money out after a major rally on Wednesday. The S&P 500 added 1% on Wednesday to close above 5,600 for the first time, while the Nasdaq Composite advanced 1.18% to a record close. The 30-stock Dow gained 429.39 points on the day.

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