Wall Street tumbled as Big Tech companies dragged the market lower after earnings reports from Tesla and Alphabet, sending U.S. stock indexes to their worst day since 2022.
The S&P 500 fell 2.3% on Wednesday, its fifth loss in the past six days. The Nasdaq fell 3.6% and the Dow Jones Industrial Average fell 1.2%. Electric car maker Tesla said its spring profits fell 45%, sending its shares tumbling. Alphabet shares fell despite better-than-expected profits and revenue. Critics have been warning that Big Tech stocks have become too expensive after surging for much of the year.
The bigger challenge for Alphabet may just be how much its shares have risen, rising nearly 50% in the 12 months through Tuesday on expectations for continued growth.
Profit expectations are high across Wall Street, especially for a small group of stocks known as the “Big Seven.” Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla will need to continue their strong growth after driving most of the S&P 500’s record year this year at a time when many others are under the weight of high interest rates Difficulty moving.
The hope on Wall Street is that if the Big Seven’s momentum does weaken, more stocks outside of them can rise to support the market. The situation may improve in due course. Hopes of imminent interest rate cuts have helped small-cap stocks in particular flip up the market charts and rise in recent weeks.
The Russell 2000 index of smaller stocks has gained at least 1% in seven of the past 10 days, but fell 1.5% on Wednesday.
They have been rising as U.S. Treasury yields have pulled back on expectations that inflation will slow enough for the Federal Reserve to begin lowering key interest rates in September.
U.S. Treasury yields were mixed on Wednesday as preliminary data showed U.S. manufacturing business activity was shrinking again, but the services sector continued to grow. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the overall data points to a “Goldilocks” scenario, in which the economy is neither hot enough to put upward pressure on inflation nor cold enough to slip into recession.
But he said some potentially worrying signals were also lurking beneath the surface, including heightened uncertainty about the November election.
Another report said U.S. new home sales were unexpectedly weak, but economists predicted sales growth would accelerate.
The 10-year Treasury yield rose to 4.27% from 4.25% late Tuesday. It had slowed a bit earlier in the morning but was still down from April’s 4.70%. That was a sharp move for the bond market, providing support for stock prices.
AT&T was a bright spot on the stock market after its latest quarterly profit matched analysts’ expectations and its shares rose 5.1%. Thanks to the growth of Fisher-Price and Hot Wheels products, Mattel’s profit exceeded expectations and its stock price rose 9.7%.
The problem for Wall Street is that even if more stocks rise, their gains would need to outpace the declines in Big Tech stocks because of the sizable influence of smaller groups.
Take Nvidia, for example, which saw its shares fall 6.5%. While the drop wasn’t as steep as Tesla’s, it was still the heaviest in the S&P 500. 1% A 1% move would have a greater impact on the index for any company other than Microsoft or Apple.
Critics have long said Nvidia and other winners of the artificial intelligence boom are looking expensive after soaring too high in the frenzy.
In addition to large technology companies, Visa’s latest quarter revenue was slightly lower than analysts’ expectations, and its stock price fell 3.3%.
Lamb Weston shares fell 27.2%, the worst drop on the S&P 500, after the supplier of French fries and other frozen potato products reported a lower-than-expected profit in its latest quarter. The company said fewer customers visited its restaurants during the spring than expected. It also warned that challenges could continue into the upcoming financial year due to weak demand due to “increased menu prices”.
In foreign markets, European and Asian stock indexes plummeted.
France’s CAC 40 index fell 1.1% and shares in luxury goods giant LVMH fell 4.7% in Paris after the owner of Louis Vuitton and Dior reported quarterly sales that missed expectations.
