Sarah Travers
U.S. stock indexes saw significant declines on Wednesday, driven by disappointing profit reports from tech giants Tesla and Alphabet. The S&P 500 experienced a 1.3% drop in morning trading, marking its fifth decline in six days. Meanwhile, the Dow Jones Industrial Average fell by 342 points, or 0.8%, and the Nasdaq composite saw a more pronounced 2% decrease. These movements highlight the sensitivity of the market to the performance of key tech stocks.
The recent downturn underscores investor concerns about the broader economic outlook and the performance of leading technology companies. With high expectations set for tech giants, any deviation from anticipated earnings can significantly impact market sentiment and lead to notable shifts in stock prices.
Tesla’s Significant Decline
Tesla emerged as one of the heaviest weights on the market, with its shares plummeting 12.5%. The electric vehicle maker reported a 45% drop in profits for the spring compared to the previous year, falling short of analysts’ earnings forecasts. This disappointing performance has raised questions about Tesla’s ability to maintain its growth trajectory amid increasing competition and market challenges.
The sharp decline in Tesla’s stock not only affected its market capitalization but also contributed to the broader market slump. Investors are now closely monitoring Tesla’s future earnings reports and market strategies to gauge the company’s resilience and potential for recovery.
Alphabet’s Mixed Results
Alphabet, despite delivering better-than-expected profit and revenue for the latest quarter, saw its shares drop 3.3%. Analysts pointed to some pockets of weakness, including weaker growth in advertising revenue for YouTube than anticipated. This mixed performance has led to a reassessment of Alphabet’s growth prospects, especially given its significant stock rally of nearly 50% over the past 12 months.
The larger challenge for Alphabet may be the high expectations placed on it and other tech giants, collectively known as the “Magnificent Seven.” These companies, including Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, have been responsible for the majority of the S&P 500’s record highs this year. As such, any sign of slowing momentum can have outsized effects on the market.
Smaller Stocks and Treasury Yields
While the “Magnificent Seven” have been pivotal in driving the market, there is hope on Wall Street that other stocks can rise to support the market if these tech giants’ momentum flags. The Russell 2000 index of smaller stocks has seen significant jumps recently, aided by easing Treasury yields and expectations of interest rate cuts. The index has leaped at least 1% in seven of the last 10 days, though it fell 0.8% on Wednesday.
Treasury yields dropped once more on Wednesday following preliminary data indicating a contraction in U.S. manufacturing activity, although services industries continued to expand. In Europe, similar indicators also fell short of expectations. Additionally, a report revealed that new home sales unexpectedly declined, contrary to economists’ predictions of an increase. Consequently, the yield on the 10-year Treasury decreased to 4.23% from 4.25%, offering some support to stock prices.
Sector Performances and International Markets
In the stock market, some sectors saw gains while others faced declines. AT&T was a bright spot, rising 3.9% after its profit for the latest quarter matched analysts’ expectations. Conversely, Visa saw a 3.6% drop as its revenue for the latest quarter slightly missed expectations. Lamb Weston experienced the worst loss in the S&P 500, plummeting nearly 22% due to weaker-than-expected profits and lower restaurant patronage.
International markets also faced challenges, with indexes slumping across Europe and Asia. France’s CAC 40 index fell 0.9%, driven by a 3.6% drop in shares of luxury giant LVMH. The owner of Louis Vuitton and Dior reported quarterly sales that missed expectations, contributing to the broader market declines. This global market reaction emphasizes the interconnectedness of economies and the ripple effects that major earnings reports can have worldwide.
