Inflation Drop Fuels Rate Cut Speculation, Investors Shift To Sector Laggards, Russell 2000 Surges Over 3.6%: This Week In The Markets

Consumer price index data this week provided encouraging signs that American inflation is moving ever closer to the Federal Reserve’s much-discussed 2% target.

This fueled speculation about interest rate cuts.

The annual inflation rate dropped more than expected to 3% in June 2024, reaching its lowest level since March 2021. Remarkably, the monthly inflation rate showed a contraction of 0.1% for the first time since May 2020.

Investors and economists increased their convictions on the Fed's readiness to cut interest rates in September, pushing market-implied odds of a cut to over 90%.

A higher-than-expected producer inflation data report Friday did little to alter these expectations significantly, as the latest consumer sentiment report from the University of Michigan confirmed subdued morale and a decline in inflation expectations.

In the markets, sectors previously impacted by high interest rates — and have not yet priced in potential reductions in borrowing costs — outperformed the tech sector, which had already largely anticipated such rate cuts.

The equal-weight S&P 500, as tracked by the Invesco S&P 500 Equal Weight ETF RSP outpaced the cap-weighted S&P 500, monitored through the SPDR S&P 500 ETF Trust SPY, while value stocks outperformed their growth counterparts.

Both the real estate sector — as tracked by the Real Estate Select Sector SPDR Fund XLRE – and the Russell 2000 small-cap index — as replicated by the iShares Russell 2000 ETF IWM – achieved their strongest week of the year.

Chart Of The Week: Russell 2000 Enjoyed Strongest Week Since October 2023

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Rare Market Dynamic: On Thursday, the Russell 2000 surged 3.63% while the Russell 1000 large-cap index fell 0.66% — the fifth time in history that the performance difference between the two indexes exceeded 4%. It has previously occurred during major market downturns. This time it came near an all-time high for the S&P 500.

Weight-Loss Pill: Pfizer Inc. PFE announced advancements in its once-daily weight-loss pill, danuglipron, showing a favorable pharmacokinetic and safety profile. The pharma giant plans to conduct dose optimization studies in late 2024.

Tech Stock Poll: Apple Inc. AAPL, Microsoft Corp. MSFT, Meta Platforms Inc. META and Alphabet Inc. GOOGL all hit 52-week highs. A Benzinga poll reveals investor preferences:

• Microsoft led with 32%
• Apple at 29%
• Google at 23%,
• Meta at 16%.

Investors cited artificial intelligence growth potential and valuations as key factors influencing their choices.

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