The Dow Jones Industrial Average closed at a one-month high on Monday, fueled by a rotation out of AI-linked stocks and into laggards as investors bet on Federal Reserve interest rate cuts later this year. While the Nasdaq tumbled over 1%, driven by a sell-off in technology stocks, the broader market showed signs of strength.
The Dow’s gains were driven by a shift in investor sentiment, with investors moving away from technology stocks that had led this year’s rally. This rotation saw energy and financial sectors performing well, benefiting from expectations of a recovering economy and potential rate cuts.
The biggest driver of this shift was the anticipation of the upcoming PCE price index report, the Fed’s preferred measure of inflation, scheduled for release on Friday. Investors are expecting a softening of price pressures, leading to a belief that the Fed will lower interest rates soon. This expectation is further supported by the fact that LSEG’s FedWatch shows a 61% chance of a 25-basis-point cut in September.
Nvidia, the world’s most valuable company after its meteoric rise last week, saw a third consecutive decline, falling 6.68% as investors took profits. Other chip stocks, including Taiwan Semiconductor Manufacturing, Broadcom, Marvell Technology, and Qualcomm, also dropped significantly.
The energy sector, however, saw strong gains, driven by rising oil prices fueled by expectations of higher fuel demand. The global economic recovery is anticipated to boost demand for energy, benefiting oil companies and their services.
Meta Platforms saw a rise after a report that the Facebook parent has discussed integrating its generative AI model into Apple’s recently announced AI system for iPhones. Apple shares also climbed.
RXO jumped after announcing the acquisition of United Parcel Service’s Coyote Logistics business unit for $1.025 billion, showcasing strong growth in the logistics sector.
While the Nasdaq Composite fell 1.09%, the S&P 500 ended lower as well, down 0.29%, reflecting the broad rotation out of technology stocks. However, the Dow’s gain and the Russell 2000’s one-week high suggest a broader market strength.
Overall, the market is displaying mixed signals, with a clear rotation in play as investors prepare for potential Fed rate cuts and anticipate a softening of inflation. The upcoming PCE price index report will be crucial in providing further clarity on the direction of the market.