A lower-than-expected inflation report for June caused wild market reactions, leading to a surge in traders' expectations of Federal Reserve rate cuts and boosting assets that are particularly sensitive to high interest rates.

As the annual inflation rate slowed from 3.3% to 3%, below the predicted 3.1%, and the monthly reading indicated the first contraction (-0.1%) in four years, traders swiftly increased their odds of a September rate cut, now placing a 92% chance.

Surprisingly, large-cap indices such as the S&P 500 and the tech-heavy Nasdaq 100 index fell, dropping 0.9% and 2.1% respectively, with the latter eyeing its worst daily performance of 2024, previously seen on April 30. These reactions suggest that market participants had likely already priced in rate cut expectations into tech stock valuations and are now rotating from top-performing sectors to laggards.

The outperformance of the S&P 500 real estate sector over tech by more than 5 percentage points marked the largest one-day relative change in over four years, indicating a potential sectoral shift.

Other assets making significant moves included small caps, with the iShares Russell 2000 ETF (NYSE:IWM) up 3.3%, its strongest one-day return since mid-December 2023; gold, up 1.7%; and long-dated Treasury bonds, with the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) rallying 1.5%.

Equity industries showing notable growth were those positively impacted by the prospects of lower interest rates. Homebuilders, tracked by the SPDR Homebuilders ETF (NYSE:XHB), were up 6.7% for the day, their strongest one-day performance since mid-December 2023. Regional banks, represented by the SPDR S&P Regional Banking ETF (NYSE:KRE), rose 3.4%. Gold miners, tracked by the VanEck Gold Miners ETF (NYSE:GDX), climbed 2.4%, on track for their highest close since April 2022.

Bitcoin (CRYPTO: BTC) was flat at $57,800.

Thursday's Performance In Major US Indices, ETFs

Updated at 1:05 PM ET

According to Benzinga Pro data:

• The SPDR S&P 500 ETF Trust (NYSE:SPY) was 0.9% lower to $556.201.
• The SPDR Dow Jones Industrial Average (NYSE:DIA) inched 0.1% higher to $397.59.
• The tech-heavy Invesco QQQ Trust (ARCA: QQQ) tumbled 2.1% to $492.83.
• Sector-wise, the Real Estate Select Sector SPDR Fund (NYSE:XLRE) outperformed, up by 2.5%, while the Technology Select Sector SPDR Fund (NYSE:XLK) lagged, falling 2.4%.

Thursday's Stock Movers

• Tesla Inc. (TSLA) fell over 6%, after Bloomberg flagged delays in the Robitaxi project.
• Top-performers within real estate stocks were Communications Corporation (NYSE:SBA) Alexandria Real Estate Equities, Inc. (NYSE:ARE), both up 6.5%.
• PepsiCo Inc. (NYSE:PEP) was 0.4% higher, following quarterly earnings.
• Other stocks reacting to earnings were Delta Air Lines Inc. (NYSE:DAL), ConAgra Brands Inc. (NYSE:CAG), up 0.4% and down 2% respectively.
• Caesars Entertainment Inc. (NASDAQ:CZR) rose 6.7%.

• Inflation Data Sparks Rush For Gold, Real Estate, Treasuries, Yen: Traders See September Rate Cut As Done Deal

Image created using artificial intelligence via Midjourney.