By Ankika Biswas, Lisa Pauline Mattackal and Carolina Mandl
(Reuters) -The Dow rallied on Monday to a one-month high, while the Nasdaq tumbled over 1% as investors rotated out of AI-linked stocks and added some laggards to their portfolios, betting on Federal Reserve interest rate cuts this year.
The S&P 500 and Nasdaq ended lower on the rotation out of technology stocks whose outsized gains have led this year's rally. Still, nine of the S&P 500's 11 major industry sectors gained ground.
Nvidia (NASDAQ:NVDA) slid 6.68% for a third session, as market watchers cited profit taking in the semiconductor bellwether after last week's meteoric rise made it the world's most valuable company.
Other chip stocks including U.S. shares of Taiwan Semiconductor Manufacturing, Broadcom (NASDAQ:AVGO), Marvell Technology (NASDAQ:MRVL) and Qualcomm (NASDAQ:QCOM) dropped between 3.53% and 5.7%, dragging the chip stocks index down 3.02%.
"The market's selling some of the winners and buying some of the laggards here," said Jack Janasiewicz, lead strategist at Natixis Investment Managers. "It's a little bit of a nod to looking out over the inflation data that is coming out on Friday, as expectations are for a pretty soft print."
Technology and the consumer discretionary were the only two decliners among the 11 S&P 500 sector indexes, while the energy sector was the top outperformer, advancing 2.73%.
"There's been a rotation into some of the value areas of the market like financials, energy, and utilities. Energy has the additional benefit of a little bit of a jump in oil prices," said Ed Clissold, chief U.S. strategist at Ned Davis Research. Oil prices rose on Monday spurred by stronger fuel demand expectations, shares of energy and oil field services companies rose.
The Dow Jones Industrial Average jumped and registered a five-day winning streak. The small-caps index Russell 2000 also hit its highest in over a week, signaling broader market gains.
Except for Nvidia and other chip stocks, "the rest of the market is behaving positively on the expectation that we're still on course for a soft landing base case," said Carl Ludwigson ,managing director at Bel Air Investment Advisors.
The biggest event on investors' radar for the week is Friday's personal consumption expenditures (PCE) price index report, the Fed's preferred measure of inflation, expected to show a moderation in price pressures.
Investors still expect about two rate cuts this year, pricing in a 61% chance of a 25-basis-point cut in September, as per LSEG's FedWatch. The Fed's own latest projection is for one rate cut likely in December.
San Francisco Fed President Mary Daly said she does not believe the U.S. central bank should cut rates before policymakers are confident inflation is headed toward 2%.
The S&P 500 lost 15.73 points, or 0.29%, to end at 5,448.89 points, while the Nasdaq Composite lost 190.19 points, or 1.09%, to 17,499.17. The Dow rose 257.99 points, or 0.66%, to 39,408.32.
Other data this week include durable goods, weekly jobless claims and final first-quarter GDP figures, the annual Russell index reconstitution. Some quarterly earnings reports also are due.
On Thursday, President Joe Biden will debate Republican rival Donald Trump in Atlanta, which could influence the outcome of a race for the November election that opinion polls show as neck-and-neck.
Meta Platforms rose after a report the Facebook (NASDAQ:META) parent has discussed integrating its generative AI model into Apple (NASDAQ:AAPL)'s recently announced AI system for iPhones. Apple's shares also climbed.
RXO leapt on plans to buy United Parcel Service (NYSE:UPS)'s Coyote Logistics business unit for $1.025 billion.
Advancing issues outnumbered decliners by a 2.25-to-1 ratio on the NYSE. There were 179 new highs and 48 new lows on the NYSE.
The S&P 500 posted 35 new 52-week highs and one new low while the Nasdaq Composite recorded 49 new highs and 128 new lows.
Volume on U.S. exchanges was 10.94 billion shares, compared with the 11.92 billion average for the full session over the last 20 trading days.