Tech Stocks Lead Intraday Reversal
The tech heavyweights flexed their muscle on Wall Street today, leading a furious comeback rally as investors piled back into growth stocks on expectations the Federal Reserve will approve at least a modest rate cut next week.
After getting clobbered in early trading following a hotter-than-expected inflation report, the Nasdaq Composite roared back to close up 2.17% at 17,395.53. The S&P 500 also rallied 1.07% to 5,554.13, buoyed by big gains in semiconductor stocks like Nvidia, which soared 8%.
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Mega-Caps Erase Steep Deficits
The intraday swing saw the Nasdaq erase a 2.5% deficit and the S&P 500 recover from a 1% drop as dip buyers scooped up beaten down mega-caps. Apple, Microsoft, Amazon and the Philadelphia Semiconductor index all surged over 2%.
Betting on 25 Basis Point Fed Cut
The turnaround came as traders reassessed Wednesday's inflation data and doubled down on bets that the Fed will stick to a 25 basis point rate cut at its September meeting. While the "core" consumer price index reading ticked up more than expected, the overall trajectory showed inflation continuing to decelerate.
Fed Pause Fuels Melt-Up Prospects
Fed funds futures now imply an 85% chance of a quarter-point cut next week, up from 65% before the CPI report hit. And investors are increasingly pricing in a pause on hiking after September as the lagging impact of past tightening kicks in.
That's stoking hopes of a potential melt-up rally in risk assets, especially in the tech space, where valuations have been hammered over the last 18 months. The Nasdaq remains down nearly 15% from its record high, trading at just 26 times forward earnings versus a 10-year average of 30 times.
Key Technical Levels to Watch
Wednesday's resurgent buying may offer a taste of that dynamic playing out if the Fed signals a pause next week. Key levels traders are watching include the Nasdaq retaking its 200-day moving average around 17,800. A decisive break above that could embolden momentum chasers to drive benchmarks to new highs for the year.
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