INVESTORS ROTATE INTO BANKS, SOFTWARE AS CHIP STOCKS TAKE A BREATHER
The main U.S. indexes ended modestly red in choppy trading on Wednesday as investors parsed Federal Reserve Chair Kevin Warsh's comments that inflation risks had eased.
Warsh also said he will stick firmly to the U.S. central bank's 2% inflation target and "disappoint" anyone who expects loose monetary policy despite President Donald Trump's call for interest rate cuts.
Meanwhile, unease surrounding U.S.-Iran tensions has cast a shadow over Middle East peace talks, setting a cautious tone for the second half of the year. Tehran said it would not meet with top U.S. envoys who flew to the region following an outbreak of hostilities. Although a source with direct knowledge of the talks, as well as an Iranian official, said the U.S. and Iran held technical talks in Doha, contrasting rhetoric suggested a breakthrough may prove elusive.
A majority of S&P 500 CBOE:SPX sectors finished higher. Communication services SP:S5TELS led the way, climbing more than 2.5%, while financials SP:SPF gained over 2%. On the other hand, tech SP:S5INFT lost more than 1.5% and utilities SP:S5UTIL gave up more than 1%.
Beneath the surface, investors appeared to be rotating within the market. Semiconductor stocks NASDAQ:SOX, which enjoyed a powerful rally through the first half of the year, came under heavy pressure as traders took some profits. At the same time, money flowed into software and services companies (.SPLRCIS), as well as both big banks and regional banks.
In fact, the S&P 500 Banks Index (.SPXBK) and the KBW Regional Banking Index NASDAQ:KRX scored record closing highs.
Another notable theme was the continued rebound in the so-called Magnificent Seven stocks. The Roundhill Magnificent Seven ETF CBOE:MAGS rose 2.4%, extending its winning streak to a fourth consecutive session. Six of the seven stocks gained, with Meta Platforms NASDAQ:META jumping 9%, and Microsoft NASDAQ:MSFT up 3%. Only Nvidia NASDAQ:NVDA declined.
With U.S. markets closed Friday for the July 4 holiday, investors will be looking to the June jobs report on Thursday for clues on the health of the economy and the likely path of interest rates before heading into the long weekend. Expectations call for 110,000 new jobs vs. 172,000 last month.
Here is a snapshot of where markets stood shortly after 4 p.m. ET.