Major large-cap stock indices hit new highs, but the momentum shifted on Wednesday when mixed results from a couple of semiconductor companies seemingly caused a decline in some of the larger tech stocks, which significantly influence the S&P 500 and NASDAQ indices. As a result, the capitalization-weighted S&P 500 closed down nearly 2%. However, the equal-weighted S&P 500 only fell by 0.2%, and many value-oriented and cyclical stocks posted gains for the week, driving the Dow Jones Industrial Average up nearly three quarters of a percent.

While Jobless Claims came in smaller than anticipated, stocks shrugged off Friday’s slightly hot Producer Price Index (PPI) report as investor expectations for a September rate cut and potentially one more in 2024 grew. A notable rotation away from mega-cap tech stocks towards the “rest of the market” took place with cyclical stocks and interest rate sensitive issues outperforming.

Disappointing economic reports once again increased expectations for Fed rate cuts, which seems to be the market’s primary concern at this point in time. A Goldilocks ISM Manufacturing print, a headline miss in the June ISM Services Index, a softer than anticipated June jobs report, and dovish commentary from Fed Chair Powell all boosted sentiment in the holiday-shortened week with low volumes. The rally was also supported by easing European political worries as the political extremist failed to gain the traction people were expecting in the French elections.

Stocks surged to new highs early last week, buoyed by enthusiasm around AI and leading tech stocks but momentum waned later in the week as investors digested some softer than expected economic data heading into Friday’s options expiration. Despite the stall, the S&P 500 managed a weekly gain of 0.61%, bringing its year-to-date increase to 14.57%.

Last week’s economic data indicated a resurgence of disinflation as both CPI and PPI beat expectations. The highlight was Wednesday’s CPI report, which posted the best inflation numbers in months. Thursday’s PPI report reinforced this trend with a headline decline and flat core. Together, CPI and PPI data confirmed solid downward pressure on inflation in May.