Topline
It was a brutal Wednesday for stocks, as two of three of the major indexes headed toward their worst days in more than a year following the latest batch of corporate earnings, as the big technology stocks behind stocks’ historic expansion led the gore.
Shaky earnings sent stocks slumping Wednesday.
Key Facts
The benchmark S&P 500’s 2.3% slide was its largest percentage loss since December 2022, the tech-heavy Nasdaq’s 3.6% marked its worst day since October 2022 while the Dow Jones Industrial Average, which only tracks 30 stocks and does not weight by constituents’ market capitalization, suffered a milder 1.3% loss.
The losses followed Tuesday afternoon earnings reports from three of the U.S.’ 15 most valuable companies—Google parent Alphabet, electric car maker Tesla and credit card giant Visa—that disappointed the market across the board despite mixed headline results, sending each firm to their worst day on Wall Street in months.
Tesla stock’s 12% dive after reporting a 45% annual decline in profits would be its worst day since January, Visa stock’s 4% fall after the company’s first quarterly revenue miss since 2020 puts it on track for its steepest daily decline since May 2022 and Alphabet stock’s 5% drop, following a double earnings beat marred by comments about artificial intelligence capital expenditures, would be its worst day since February.
The chilly reaction to Alphabet and Tesla, the first two of the AI-happy “magnificent seven” companies to report second-quarter results, may be a particularly bad omen for the broader market considering the septet’s outsized contribution to overall earnings growth and higher valuations.
Magnificent seven earnings “started on an underwhelming note,” remarked Deutsche Bank strategist Jim Reid in a Wednesday note to clients.
All five of the other magnificent seven stocks also fell precipitously Wednesday, with Amazon down 3%, Apple 3%, Meta 6%, Microsoft 4% and Nvidia 7%.
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Big Number
$770 billion. That’s about how much market value the magnificent seven shed Wednesday, led by more than $100 billion losses for Alphabet and Nvidia.
Key Background
Next week, four of the remaining magnificent seven firms will report earnings, with Microsoft on Tuesday, Facebook parent Meta on Wednesday and Amazon and Apple on Thursday, while Nvidia will disclose results in late August. The group’s surging profits and growing relative price-to-earnings valuations as investors bought into AI have buoyed the market’s record run since late 2022 despite two-decade-high interest rates, with all three major indexes hitting new all-time highs earlier this month. However, the tides have shifted over the last week. The S&P and Nasdaq are down 3% and 5% from their respective record closing prices set earlier this month. Goldman Sachs strategists warned last week there’s high potential for a summer selloff owing to the fairly uninterrupted recent gains and potential for volatility tied to geopolitical events.
What To Watch For
The U.S. will report its second-quarter gross domestic product Wednesday morning, offering a glimpse into how well the broader economy is performing. “The ultimate direction of the S&P 500 will still be determined by economic growth,” remarked Sevens Report analyst Tom Essaye in a Monday note.
Further Reading
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