The S&P 500 and Nasdaq Composite retreated on Wednesday as the rotation out of high-flying technology shares and into more rate-sensitive names continued.

The broad S&P 500 lost 1.39% to close at 5,588.27. The tech-heavy Nasdaq slid 2.77% to end at 17,996.92, posting its worst session since December 2022 and closing below 18,000 for the first time since July 1.

But the Dow Jones Industrial Average bucked the downtrend, adding 243.60 points, or 0.59%, to end at 41,198.08. That propelled the index to its first-ever close above 41,000.

A gain of about 4.5% in UnitedHealth following a Wall Street upgrade on the back of its strong earnings report helped lift the 30-stock index. This builds on Tuesday's rally of more than 700 points, which marked the blue-chip index's best day in more than a year.

On the other hand, the S&P 500 and Nasdaq were weighed down by a continued pullback in megacap technology stocks. That marks a turn after tech stocks' monster run this year amid the artificial intelligence craze.

In fact, Wednesday's session was the first since 2001 in which the Nasdaq posted a loss exceeding 2.5% while the Dow registered a gain. Within the S&P 500, information technology and communication services were the two worst performing sectors in the session.

Notably, Meta Platforms tumbled 5.7%, while big tech peers Netflix and Microsoft dropped more than 1%. Apple slid 2.5%.

Semiconductor stocks also struggled after Bloomberg News reported that the Biden administration is considering tougher trade restrictions if companies continue granting China access to U.S.-made technology.

The VanEck Semiconductor ETF (SMH) fell more than 7% following the report, its worst day since March 2020. Nvidia and U.S.-listed shares of Taiwan Semiconductor sank more than 6% and nearly 8%, respectively.

The Russell 2000 slipped 1%, ending its five-day win streak. Still, the small cap-focused index has climbed more than 9% over the last five trading days as the market rally broadened out. Meanwhile, the Nasdaq has shed more than 3% in the same period amid the tech sell-off.

This rotation comes as traders have become more optimistic on interest rate cuts, which should benefit small caps and companies with higher financing costs. Fed funds futures trading implies a high likelihood the Federal Reserve will lower rates in September, according to the CME FedWatch tool.

"People are literally just selling some of the megacaps, taking some profits, and buying some of those more cyclical companies," said Mike Dickson, head of research and quantitative strategies at Horizon Investments. "I would not be surprised to see this continue until earnings."

Correction: An earlier version misstated the day when the Dow rose more than 700 points.

S&P 500 and Nasdaq close lower; Dow rises

The S&P 500 and Nasdaq Composite finished lower on Wednesday as the rotation out of megacap technology shares continued.

The broad S&P 500 slid 1.4%, while the tech-heavy Nasdaq dropped nearly 2.8% for its worst day since 2022. The Dow, on the other hand, rose 0.6%.

— Alex Harring

Discounts lure shoppers online as consumers hunt for value

Never underestimate the desire to score a good bargain.

"Steep discounting has been the story of e-commerce so far this year, as consumers look to get the most value out of their dollar," said Vivek Pandya, lead analyst at Adobe Digital Insights, in an email announcing that Tuesday was the biggest online shopping day of the year so far.

Lured in by industry-wide deals to compete with Amazon's two-day Prime Day event, consumers spent $7.2 billion online on Tuesday, according to Adobe Analytics. Previously, the firm estimated shoppers would ring up $14 billion in sales this year on Tuesday and Wednesday, which would be a 10.5% gain year over year.

The promotional event has become a key way for retailers to launch the back-to-school shopping season, and this year is no different, with brisk sales of backpacks and kids apparel.

Pandya also said there was increased demand for electronics and apparel on Tuesday. Those categories have seen more modest growth in recent months, he said.

Shoppers used "buy now pay later" options to finance $540 million of those purchases, according to Adobe. That's a 7.5% share of online purchases, and represents 17.1% growth from a year ago, it said.

—Christina Cheddar Berk

Short-term risk to reward skew is 'no longer favorable,' says BTIG

Current risk-to-reward for equities is skewing toward the downside after the rally for small caps and the Russell 2000, according to BTIG managing director and chief market technician Jonathan Krinsky.

"In the very short-term, risk reward is no longer favorable here," Krisnky wrote on Tuesday. "The high-volume zone of $223 should at a minimum provide a period of consolidation."

"[T]he RTY likely goes higher before a meaningful pullback given the nature of the multi-month breakout. With that said, it's hard to want to chase it here and now," he added.

— Brian Evans

Airline earnings slumped in the second quarter, dragging down industrial profits

U.S. airline earnings are estimated by Wall Street to have tumbled in the second quarter, hurting the profit picture for the entire group of industrial stocks in the S&P 500, according to LSEG numbers.

2Q airline profits are forecast to decline by:

• JetBlue                               -130% (i.e., expected loss of 14 cents vs. a 45 cent profit a year ago)
• Southwest Airlines           - 53%
• American Airlines             - 45%
• United Airlines                   - 22% (reports Wed. postmarket)
• Alaska Airlines                  - 21% (reports premarket Thursday)
• Delta Air Lines                   - 12% (actual; DAL reported last week)

Industrial as well as real estate stocks in the S&P 500 are both estimated to see second quarter profits slide 2.7%, while analysts estimate materials producers' profits will shrink by 9.2%, the only three of the S&P 500's 11 main sectors whose earnings will contract in the quarter just ended.

— Scott Schnipper, Robert Hum

This new equal weight ETF is outperforming larger peers in 2024

An equal weight ETF that's less than a year old is finding a successful niche in giving investors less exposure to megacap tech.

The Astoria US Equal Weight Quality Kings ETF (ROE) has outperformed popular equal weighted funds like the Invesco S&P 500 Equal Weight ETF (RSP) in 2024 and recently crossed $100 million in assets. Some market strategists have pointed to these type of funds as a vehicle for investors to pivot away from the Magnificent 7 without pulling money out of the stock market completely.

The fund was on a five-day winning streak headed into Wednesday. The fund was down less than 1% in afternoon trading, outperforming the S&P 500.

— Jesse Pound

Investors should 'act now to put cash to work,' UBS says

UBS believes that investors should "act now to put cash to work" before the U.S. Federal Reserve begins cutting interest rates later this year.

In the face of stubborn inflation, UBS expects the first rate cut to occur in September.

"This means the attractive starting yield from quality fixed income is unlikely to last for much longer," wrote Solita Marcelli, chief investment officer of the Americas for UBS' global wealth management division. "We remain most preferred on fixed income in our global portfolios. We recommend investors position for rate cuts by buying quality bonds, implementing bond ladders, and holding diversified fixed income positions with satellite exposure to riskier credits to improve overall portfolio yields."

— Lisa Kailai Han

Morgan Stanley names Apple top pick, sees sees record refresh cycle ahead

There's more room for Apple to run higher, according to Morgan Stanley, which named the stock a top pick Tuesday. The firm believes the tech giant is on the cusp of a record device refresh cycle.

"Apple Intelligence is a clear catalyst for a multi-year product upgrade cycle," analyst Erik Woodring wrote in a note to clients.

Apple unveiled Apple Intelligence, its artificial intelligence offering, in June. It only supports the iPhone 15 Pro Max and iPhone 15 Pro, although it has wider support on other products. Woodring estimates just 8% of the iPhone/iPad installed base can currently support AI. Therefore, he expects 235 million iPhone shipments in 2025 and 262 million in 2026.

"We believe there is more room for the stock to run, as 1) investors broadly remain underweight Apple shares and 2) accelerating iPhone unit growth historically drives Apple stock outperformance," Woodring said.

His new price target of $273 suggests 16% upside from Tuesday's close. Apple has gained about 22% year to date.

— Michelle Fox

Fed's Beige Book sees slowing growth, consumers adjusting for inflation

Economic growth slowed through much of the country while consumers adjusted their behavior to account for rising prices, the Federal Reserve reported Wednesday.

In its "Beige Book" periodic update of conditions, the central bank labeled growth as rising at a "slight to modest pace," though five of the 12 Fed districts saw "flat or declining activity."

While price increases also were seen as modest, the report noted that, "almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals."

Going forward, the report saw expectations "were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation."

—Jeff Cox

ASML, Taiwan Semiconductor Manufacturing head for worst sessions since 2020

Shares of ASML Holding and Taiwan Semiconductor Manufacturing headed for their worst sessions since 2020, sinking 12% and 7%, respectively.

The declines came following a Bloomberg report that the Biden administration is weighing tougher restrictions on companies exporting technology to China. Former president Donald Trump also suggested during an interview with Bloomberg Businessweek that Taiwan should pay the U.S. for defense and that the country took "about 100%" of America's semiconductor business.

Nvidia shares slumped more than 6%, while Arm Holdings, Lam Research, Qualcomm and Advanced Micro Devices slid about 8% each. Applied Materials also dropped more than 8% and headed for its worst day since January 2022. The VanEck Semiconductor ETF dropped about 6%, on pace for its biggest daily loss since 2022.

Intel and Texas Instruments bucked the selloff trend, adding about 3% and 0.4%, respectively.

— Samantha Subin

See the stocks moving midday

These are some of the stocks moving in midday trading:

• Elevance Health — The health insurer slipped 6.4% after issuing earnings guidance for the full year. Elevance plans to see adjusted earnings of at least $37.20 for 2024, while analysts polled by FactSet called for $37.28 per share. Second-quarter adjusted earnings and revenue came in slightly ahead of estimates.
• Charles Schwab — TD Cowen downgraded shares of the financial services company to hold, sending the stock down 9%. TD Cowen cited Charles Schwab's "ongoing mixed execution" and its potential balance sheet shrinkage.
• Omnicom — Shares of the corporate communications company fell 8% despite beating revenue expectations for the second quarter. Omnicom posted adjusted earnings of $1.95 per share, which came out in line with analyst forecasts polled by FactSet. The company's revenue of $3.85 billion beat a forecast that called for $3.83 billion.

See the full list here,

— Pia Singh, Alex Harring

Leveraged Nvidia ETF has fallen more than 25% during rotation away from Big Tech

The sharp rotation away from megacap tech stocks is causing huge losses in a popular ETF aimed at Nvidia traders.

The GraniteShares 2x Long NVDA Daily ETF (NVDL) was down about 15% in midday trading, and has now lost more than a quarter of its value over the past week. The fund has become a popular during the market rally and has brought in more than $2 billion of cash so far this year.

Leverage funds focused on the semiconductor industry more broadly were also under pressure, with the Direxion Daily Semiconductor Bull 3x Shares ETF (SOXL) down more than 16% on Wednesday.

These leveraged funds are trading vehicles that are only designed to hit their stated target return in one-day periods.

There are leveraged "short" funds on popular tech trades as well, but they typically see lower flows and volume than the long funds.

— Jesse Pound

Nasdaq poised for worst day since late 2022

The Nasdaq Composite's Wednesday tumble put it on pace for its worst session since 2022.

The index lost nearly 3% in afternoon trading. If that holds through market close, Wednesday would mark the tech-heavy index's worst day since December 15, 2022, when it lost 3.2%.

Despite that pullback, the index is still up nearly 20% in 2024.

— Alex Harring

Financials lead weekly sector gains

Financials are up 3.5% week to date, putting the sector on top of the S&P 500's gains.

Regions Financial, Capital One Financial and Discover Financial Services are all up by 8% or more.

Energy is the second-best outperforming sector for the week, rising around 2.9%.

Halliburton and APA are the largest-gaining stocks in the sector, rising 7.2% week to date.

Meanwhile, information technology is the largest underperformer for the week, falling 3.3% amid a selloff in megacap tech stocks and semiconductor companies.

— Hakyung Kim

Semi ETF heads for worst day since 2022

The VanEck Semiconductor ETF (SMH) was poised to notch its biggest one-day decline since late 2022 on Wednesday.

The fund slipped around 5% in the session. If that holds through the closing bell, it would mark the ETF's worst performance since Oct. 7, 2022, when shares tumbled close to 6%.

ASML led the fund down on Wednesday with a drop of more than 11%. Advanced Micro Devices, Marvell Technology and Lam Research were the next worst performers, with each sliding more than 7%.

Texas Instruments and Intel bucked the downturn, posting advances of around 1% and 2%, respectively.

— Alex Harring

Potentially elevated Medicaid costs weighs down health insurer stocks

Shares of Elevance Health were trading 6% lower on Wednesday morning after the health insurer raised a red flag about elevated medical costs in Medicaid, despite the company beating its second-quarter estimates and reaffirming its guidance.

"As a result of redeterminations, our Medicaid membership mix has shifted, resulting in increased acuity and we are working actively with our state partners to ensure rates remain actuarially sound," Elevance CEO Gail Boudreaux said in the firm's second-quarter earnings call.

Medicaid players Centene and Molina Healthcare were also respectively trading 2.2% and 1.8% lower.

— Lisa Kailai Han, Bertha Coombs

Tech sector headed for worst day since 2022

The S&P 500 tech sector was down more than 3%, putting it on track for its biggest one-day drop since 2022. AMD, Lam Research all fell more than 7% to lead the sector lower. Nvidia fell more than 5%.

— Fred Imbert

Small cap ETFs show overbought signals

The recent rally in small- and mid-cap stocks have pushed the sector ETFs into overbought territory, according to Bespoke Investment Group.

Several ETFs, including the iShares Russell 2000 ETF (IWM), iShares Core S&P Small-Cap ETF (IJR) and the iShares Russell Mid-Cap ETF (IWR) are now trading more than three standard deviations above their 50-day moving averages, according to the firm.

Month to date, the benchmark small cap index Russell 2000 is trading 10.3% higher as optimism for interest rate cuts drives investors into previously neglected rate-sensitive areas of the market.

— Hakyung Kim

Five Below heads for worst day since March 2020

Five Below shares sank more than 16% during Wednesday's session, putting the discount retailer on pace for its worst day since March 2020.

The slump in shares came as the company announced the departure of CEO Joel Anderson and cut its second-quarter earnings and revenue guidance. Several Wall Street firms also downgraded the stock, including Evercore ISI, Morgan Stanley and Barclays.

Shares of Five Below have plummeted more than 59% this year as it grapples with slowing sales.

— Samantha Subin

Industrial output rose more than expected in June

Industrial production rose at a faster than expected pace in June, though it eased off its pace from the prior month.

Output increased 0.6% for the month, double the Dow Jones estimate though lower than the unrevised 0.9% gain in May, according to the Federal Reserve. For the quarter, production accelerated 4.3%, the highest since the fourth quarter of 2021.

Capacity utilization was at 78.8% on the month, up half a percentage point from May, better than the 78.5% forecast and the best since September 2023.

—Jeff Cox

Fed's Waller sees interest rate cuts getting closer

Federal Reserve Governor Christopher Waller on Wednesday indicated the economy is nearing a point where interest rate cuts would be appropriate.

"While I don't believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted," he said for a speech at a Kansas City Fed event.

Waller noted that the labor market is in a "sweet spot," with job growth continuing while wage gains are easing. His comments were consistent with those of other policymakers recently that have fueled strong market belief that a rate reduction is coming not at the July Fed meeting but almost certainly in September.

—Jeff Cox

Stocks open lower

The three major indexes opened Wednesday's session in the red.

The S&P 500 and Nasdaq Composite were each down by more than 1% shortly after 9:30 a.m. ET. The Dow shed just around 0.1%.

— Alex Harring

Outsized small-gap surge probably isn't over, DataTrek says

The nature of the recent 11.5% surge in small-cap stocks suggests it has more room to run, according to DataTrek Research.

"Similar returns have only come off major market lows, during bear market rallies, and after significant blips in longer run bull markets," DataTrek co-founder Nicholas Colas wrote in his daily market note. "The current move matches none of those descriptions. Rather, it is a function of investors taking outsized Big Tech/large cap gains and shifting them to increase cyclical exposure. The scale of the Russell's recent gains strongly suggests this reallocation is not yet over."

With the Nasdaq down slightly over the past four trading days, it marks the biggest gap compared to small-cap returns going back to 1990, according to David Rosenberg, head of Rosenberg Research.

—Jeff Cox

Housing starts, building permits top estimates for June

Housing data in June for new construction came in better than expected, the Census Bureau reported Wednesday.

Starts totaled 1.353 million for the month, better than the 1.3 million Dow Jones estimate and up 3% from May. Building permits were at 1.446 million, topping the outlook for 1.4 million and beating May by 3.4%. Totals for both permits and starts were revised higher in May.

—Jeff Cox

Stocks making the biggest moves premarket

Check out some of the companies making headlines in premarket trading:

• Chip stocks —Some of the largest semiconductor stocks were lower following a Bloomberg News report that said the Biden Administration is contemplating stiffer trade restrictions over concern that U.S. companies are giving China too much access to domestic semiconductor technology. Nvidia pulled back 4.4%, while Taiwan Semiconductor and AMD declined 4.7% and 4.1%, respectively. ASML, which sells semiconductor equipment for chipmakers, sank more than 8% on the news which overshadowed better-than-expected quarterly results. The VanEck Semiconductor ETF (SMH) was nearly 4% lower.
• Five Below — Shares of the discount retailer plummeted more than 15% after the company slashed its second-quarter outlook and announced the departure of CEO Joel Anderson. A slew of Wall Street firms including Evercore ISI, Morgan Stanley, Truist and Mizuho Securities all downgraded Five Below following the news.
• US Bancorp — The bank stock rose more than 1% after second-quarter earnings topped expectations. US Bancorp reported 97 cents in earnings per share, compared to a StreetAccount estimate of 94 cents per share, according to FactSet.

Read the full list here.

— Brian Evans

Gold miners gain this week as metal notches fresh intraday highs

Gold miner stocks have advanced this week as the metal has climbed to new highs.

Gold touched a new intraday record of 2,487.4 on Wednesday. Despite trading lower in Wednesday's premarket, the VanEck Gold Miners ETF (GDX) is up around 2.5% on the week, helped by rallies of at least 7% in Harmony Gold, DRDGold and SSR Mining.

The ETF has jumped more than 26% in 2024.

— Alex Harring, Gina Francolla

Small caps are set to retreat after epic 5-day run

Small caps are poised to pull back on Wednesday after an epic five-day run. The iShares Russell 2000 ETF (IWM), which tracks the small cap benchmark, dipped 0.7% in premarket trading.

The Russell 2000 index had jumped five days in a row by more than 1%, only the fifth time since 1979 it it has ever done that, according to Bespoke Investment Group. During Tuesday's session, the benchmark reached its highest level since January 2022.

Small caps took the baton from megacap technology shares last week to lead the bull market on hopes interest rate cuts will broaden out the economic recovery to their benefit.

The small-cap benchmark is up 12.8% over the last one month, triple the gains in the S&P 500.

— Yun Li

Novo Nordisk, Eli Lilly slide following encouraging drug data from Roche

Novo Nordisk and Eli Lilly shares dipped before the bell on Wednesday after Roche shared promising early stage trial data for its latest obesity drug candidate.

Shares of both Novo and Eli Lilly slipped more than 3% in the premarket. The former is known for the Wegovy drug, while the latter produces Zepbound.

In the first phase, Roche's experimental, once-daily pill had a average weight loss of 6.1% within four weeks for obese patients without Type 2 diabetes and when adjusted for the placebo, the Swiss company said. The drug candidate came from its acquisition of Carmot Therapeutics, which was completed earlier this year.

— Alex Harring, Karen Gilchrist

Semiconductor stocks under pressure

Semiconductor stocks fell in the premarket after a Bloomberg News report said the Biden administration is considering tougher trade restrictions if companies continue to give China access to U.S.-made semiconductor technology.

The VanEck Semiconductor ETF (SMH) fell nearly 3% following the report. Nvidia and U.S.-listed shares of Taiwan Semiconductor lost 3% each in the premarket.

— Fred Imbert

Trump says that if elected, he will allow Fed Chair Jerome Powell to finish his term, Bloomberg reports

Donald Trump will permit Federal Reserve Chair Jerome Powell to finish his term if elected in November, the Republican presidential candidate told Bloomberg Businessweek in an interview.

"I would let him serve it out, especially if I thought he was doing the right thing," Trump told Bloomberg. Powell is serving a second four-year term as Fed chair, ending in early 2026.

Powell first became Fed chairman in 2018 and has been subject to criticism from then-President Trump over the years on interest rate policy.

As recently as February, Trump told Fox Business that he would not reappoint Powell to lead the Fed.

— Darla Mercado

Russell 2000 had a history-making performance on Tuesday, Bespoke Investment Group says

Tuesday's gains in small caps gave the Russell 2000 index the most overbought daily reading for any major U.S. index, according to Bespoke Investment Group.

"History was made today. The Russell 2000 closed 4.4 standard deviations above its 50-day moving average. No other major US index (Dow since 1900, S&P 500 since 1928, and Nasdaq since 1971) has ever closed at that much of an extreme," the firm said in a post on X.

The Russell added 3.5% during Tuesday's trading session, notching its fifth straight day of gains as investors piled into small caps in the hopes that interest rate cuts will improve the borrowing environment for those stocks.

— Pia Singh

Stock futures open little changed

Stock futures were little changed on Tuesday night.

Dow futures added 11 points, or 0.03%, shortly after 6 p.m. ET. S&P 500 futures and Nasdaq 100 futures dipped 0.06% and 0.09%, respectively.

— Pia Singh