Market Alert: Dow, S&P 500, Nasdaq Drop! Is the Rally Over?

US stocks took a step back from recent record highs on Friday, as investors processed new inflation data and the tech sector faced headwinds. The Dow Jones Industrial Average fell by approximately 0.2%, while the S&P 500 declined by 0.6%. Leading the downward trend was the Nasdaq Composite, which dropped over 1.1%.

Big Tech stocks experienced a slump, with Nvidia (NVDA) falling by over 3% after releasing its earnings report. This decline contributed to Nvidia's first losing month since March, signaling a potential shift in the market's momentum.

Inflation Data and Consumer Sentiment

The Personal Consumption Expenditures (PCE) index, a key inflation measure monitored by the Federal Reserve, rose by 0.3% monthly and 2.9% annually in July. The annual increase marked the largest since February, exceeding the Fed's 2% inflation target. Concurrently, US consumer sentiment dipped to a three-month low, with survey respondents anticipating higher inflation in the coming year.

Monthly Gains Despite Friday's Dip

Despite the downturn on Friday, both the S&P 500 and Dow Jones Industrial Average concluded August with gains of 1.4% and 2%, respectively. This marked their fourth consecutive month of gains. The Nasdaq also achieved a 1.6% gain in August, its fifth straight winning month. This winning streak is the best since early 2024.

AI Sector Slowdown

Slowing momentum in the artificial intelligence (AI) sector has also impacted market performance. Dell (DELL) and Marvell Technology (MRVL) saw significant declines after their earnings reports failed to impress investors. Analysts suggest that expectations for tech companies are extremely high, and their performance, while strong, may not be sufficient to propel them to the next level.

Looking Ahead

Traders are still pricing in a high probability (87%) of a quarter-point rate cut by the Federal Reserve at its September meeting. However, the combination of inflation data and a cooling AI sector has introduced some uncertainty into the market outlook. The coming weeks will be crucial in determining whether the recent market rally can regain its momentum.

• Dow Jones Industrial Average: Down 0.2%
• S&P 500: Down 0.6%
• Nasdaq Composite: Down 1.1%