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The Nasdaq ended sharply lower on Thursday, hit by losses in Nvidia, Apple and Tesla as investors rotated into smaller companies after softer-than-expected inflation data fed bets the Federal Reserve will cut interest rates in September.

That rotation in markets was good news for Canadian investors, as the S&P/TSX Composite Index - which frequently underperformed Wall Street this year - closed at a record high. The Canadian benchmark was up 193.90 points, or 0.87%, at 22,544.13, surpassing its all-time peak reached in May.

The Dow finished with modest gains. But the S&P 500 also lost ground after the Labor Department report showed U.S. consumer prices fell unexpectedly in June and the annual increase was the smallest in a year, drawing the Fed closer a September rate cut.

Interest rates futures suggest traders see an over 90% chance the Fed will cut rates by its September meeting, up from about 74% on Wednesday, according to CME Group’s Fedwatch.

U.S. two-year to 10-year bond yields slid to their lowest since mid-March after the data. Canadian bond yields also fell, with the two-year and five-year yields at their lowest levels since last month.

Despite signs of receding inflation, Wall Street’s most valuable companies lost ground, with Microsoft and Amazon each losing more than 2% and Meta Platforms dropping about 4%.

Tesla tumbled 8.4%, its biggest one-day percentage drop since January, after Bloomberg News reported the company is delaying the launch of robotaxi by about two months to October.

Apple fell 2.3% after hitting a record high on Wednesday. BofA Global Markets raised its price target for Apple, saying it expects strong iPhone sales driven in part by new AI features.

As sky-high tech-related stocks fell on Thursday, shares of smaller companies rallied.

The small cap Russell 2000, which has significantly lagged the benchmark index in 2024, jumped 3.6% to close at its highest since March 2022, with investors betting rate cuts would improve conditions for smaller companies.

“What I think investors now believe is that the Fed is ready to start to cut interest rates. And so they are saying, ‘That’s good enough for me. I don’t have to wait for them to actually do it’,” said Sam Stovall, chief investment strategist at CFRA Research.

In Toronto, real estate stocks led sector gains with a 2.61% jump, hitting the highest since April. Health-care shares rose 1.3%. Energy stocks jumped 2.56%, in tandem with oil prices.

The materials sector hit its highest in more than a month before paring gains. Broadly the sectoral indices closed up in green.

Among individual stocks, MTY Food Group shares closed up 11.12% to top the Toronto Stock Exchange after the company posted higher-than-expected second-quarter profit.

Among other top gainers were precious metals miners NovaGold Resources, which closed up by 9.70% and Pan American Silver, which ended 6.10% higher.

Volume on U.S. exchanges was heavy, with 12.6 billion shares traded, compared to an average of 11.5 billion shares over the previous 20 sessions.

The S&P 500 declined 0.88% to end the session at 5,584.54 points.

The Nasdaq declined 1.95% to 18,283.41 points, while Dow Jones Industrial Average rose 0.08% to 39,753.75 points.

Thursday’s declines ended a seven-day streak of record high closes for the Nasdaq and a six-day streak for the S&P 500. It was the Nasdaq’s biggest one-day percentage drop since April 30.

The S&P 500 real Estate index surged 2.7%, trimming year-to-date losses to 1%. The communication services and information technology indexes each fell more than 2%.

Delta Air Lines slumped 4% after forecasting lower-than-expected profits in the current quarter.

Other major airline stocks also fell, with an index of S&P 500 passenger airline companies down 2.7%.

“This might be a place where consumers are getting pinched by inflation. That’s showing up in discretionary funding on things like air tickets,” said Scott Helfstein, head of investment strategy at Global X.

Investors are awaiting Producer Price Index data on Friday for insights into the inflation trajectory, along with second-quarter earnings from big banks.

Citigroup slipped 1.9% after U.S. bank regulators fined the lender $136 million.

Conagra Brands fell 1.5% after the packaged foods maker forecast annual revenue and profit below estimates.

Advancing issues outnumbered falling ones within the S&P 500 by a 3.7-to-one ratio.

The S&P 500 posted 51 new highs and 2 new lows; the Nasdaq recorded 141 new highs and 50 new lows.

Reuters, Globe staff

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