Nasdaq 100 Index Turns Positive: US Inflation Hits Three-Year High, Why Can Tech Stocks Defy the Trend?

TradingKey - On June 10, the U.S. Bureau of Labor Statistics released the latest CPI data for May, delivering a report that aligned with market expectations.

Specifically, the U.S. CPI rose 0.5% month-over-month in May, compared to the previous reading of 0.6%. The year-over-year increase was 4.2%, higher than April's 3.8%. Core CPI, excluding food and energy, rose 0.2% month-over-month, lower than April's 0.4%; core CPI rose 2.9% year-over-year, a slight pickup from the previous 2.8%.

Following the data release, the Nasdaq 100 Index was the first to pivot from losses to gains, leading the broader U.S. market, as the technology sector—its largest component—became the core driver of the index's upward movement.

Among the constituents, Lumentum (LITE) rose 5.99%, Applied Materials (AMAT) gained 5.24%, KLA (KLAC) added 5.08%, SanDisk (SNDK) rose 5.07%, Lam Research (LRCX) increased 4.77%, and Intel (INTC) climbed 1.76%.

From a sector perspective, the optical communications sector emerged as the standout leader in this technology stock rally. Credo Technology (CRDO) rose 8.65%, Applied Optoelectronics (AAOI) gained 8.04%, Lumentum (LITE) increased 5.71%, and Astera Labs (ALAB) rose 3.49%.

Looking at the CPI results, the figures fell largely within market expectations—the headline reading was elevated due to energy components, but core CPI and core services inflation were relatively moderate, showing no signs of the "secondary inflation spread" that some hawks had previously feared.

This implies that although imported pressure from energy prices persists, it has yet to translate into clear upward pressure on U.S. domestic demand and core services prices. The market interpreted this as: inflation stickiness remains, but it is not significant enough to trigger further aggressive rate hikes by the Federal Reserve.

The market interpreted this as: inflation stickiness remains, but it is unlikely to prompt further aggressive rate hikes from the Fed. In this context, the bond market did not see a sharp spike in short-term yields, and while the U.S. dollar remained firm, its upward momentum was limited, creating room for a valuation recovery in risk assets.

Why are tech stocks leading the rally?

The primary reason tech stocks have become the leading force is that their high valuations and long-duration attributes are precisely what benefit most from the window of "fading interest rate panic."

Last week's stronger-than-expected non-farm payroll data had already sparked market panic. If the current data were to show a significant strengthening in core CPI, it would signal a scenario where inflationary pressures spread from exogenous energy shocks to domestic service prices.

The Federal Reserve would find it more difficult to dismiss the rebound in inflation by "ignoring first-round effects," leading the market to inevitably scale back rate cut expectations or even reprice the risk of rate hikes; a sharp rise in Treasury yields would then directly weigh on tech stock valuations.

However, the current data met expectations, meaning the market only needs to maintain its existing "higher for longer" pricing without adjusting toward more extreme scenarios. The pricing logic for risk assets has shifted from "macro tightening games" back to "technical factors and earnings expectations themselves."

Meanwhile, the technology sector—particularly AI supply chain plays and mega-cap tech leaders—enjoys the most distinct support in the current market regarding earnings expectations and industry narratives. Consequently, they were the first to rebound during this round of sentiment recovery, serving as the core force leading the broader market higher.

Market analysts noted that after a continuous rally to record highs, valuations and positions within the AI chain have indeed accumulated significant gains. The May non-farm payroll data, which exceeded expectations, briefly pushed up rate hike expectations; combined with highly concentrated leading positions and low market breadth, this triggered a rapid market correction. However, this momentum-driven rally is primarily fueled by consistent upward revisions of near-term earnings expectations, suggesting solid fundamental support rather than pure speculation.

This round of correction resembles more of a healthy shakeout—flushing out overcrowded positions and correcting elevated short-term valuations. As long as earnings expectations are not systematically revised downward and there is no significant tightening of credit and liquidity environments, the market still has room for further upside following the pullback. As the sector with the most certain earnings narrative in this cycle, tech stocks naturally remain the top choice for capital rotation.