“The NASDAQ is being dragged lower by mega-cap tech stocks, which are experiencing a rapid correction as some of the air comes out of the AI bubble.

“The anomalous outperformance of small caps, which has seen the Russell 2000 surge, also continued: it’s a weird but not inexplicable move, with investors rotating into more cyclical names that could benefit from rate cuts and Trumpian fiscal excess.

“US GDP data supported the case of a resilient US economy.

“It far exceeded expectations, rising to 2.8%, smashing the 2.0% estimate.

“Promisingly, the price deflator showed ongoing disinflation, albeit less than forecast.

“Nevertheless, the data supports the case of an expanding economy and moderating inflation that allows for imminent Fed cuts.

“Rates futures have a cut – and then some – baked in for the September meeting.

“The next test and arguably climax to the week’s trade will be tonight’s PCE Index.

“After last night’s upside surprise in the GDP price deflator, there are concerns about upside risk to the current consensus estimate for the PCE Index (on both a core and headline basis) of 2.5%.

“While a modest upside surprise wouldn’t necessarily derail the path back to the target of inflation, it could impact the expected timing of the first cut and the number of cuts that could come over the next six months.

“That could rattle the markets at a time when sentiment is already a little cautious.

“Of course, a lower-than-expected print could help stabilise equities – and even raise speculation, if only slightly and at the margins, of a Fed cut next week.”