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By Ankika Biswas and Lisa Pauline Mattakal
The Nasdaq fell to a one-month low on Wednesday after Tesla and Alphabet disappointed with weak earnings, prompting investors to question whether the rally in big tech and artificial intelligence stocks in 2024 is sustainable in the long term.
Tesla shares fell 11%, and are set to lose about $83 billion in market value at current levels from Tuesday’s close if the losses continue, after the electric carmaker reported its lowest profit margin in more than five years and failed to meet second-quarter earnings estimates.
Shares of Google parent Alphabet Inc. also fell 4.6% despite a better-than-expected second-quarter profit, as investors focused on slowing advertising growth and the company pointed to high capital expenditures for the year.
Shares of Tesla and Alphabet caused the telecom services and consumer discretionary sectors to fall by more than 3% each.
“There was clearly nothing positive (in the results) and this market needs something to exceed expectations to continue to function,” said Tom Plumb, CEO and portfolio manager at Plumb Funds.
Alphabet’s losses underscored the rising profit ceiling for the so-called Magnificent Seven, a group of mega-cap tech stocks that have posted double- and triple-digit percentage gains so far in 2024, driven by optimism about the adoption of artificial intelligence and expectations of an early start to interest-rate cuts by the Federal Reserve.
“I can’t help but think that if the tech sector sneezes, the entire market could catch a sneeze,” said David Morrison, chief market analyst at Trade Nation.
The benchmark S&P 500 index fell to its lowest level in three weeks, dragged down by a 3% decline in Apple (NASDAQ:), Microsoft (NASDAQ:), Amazon (NASDAQ:), Meta Platforms (NASDAQ:), and Nvidia (NASDAQ:).
The Dow Jones Industrial Average hit its lowest level in about two weeks, with Visa Inc (NYSE:) shares falling 4% after its third-quarter revenue growth fell short of expectations.
Fearing the value of these companies would rise, market participants began to shift to underperforming sectors in mid-July.
The S&P 500 is trading on average at a price-to-earnings ratio of 21.4, compared with a historical average of 15.9, data from the London Stock Exchange showed. Of the companies in the index that have reported second-quarter earnings so far, 78.9% have beaten estimates.
In economic data, the preliminary reading of the US composite Purchasing Managers’ Index (PMI) issued by Standard & Poor’s Global showed that business activity rose to a 27-month high in July.
Friday’s release of personal consumption expenditures, the Federal Reserve’s preferred measure of inflation, is expected to be the most closely watched economic data this week.
Traders largely expect a 25 basis point rate cut by September and two cuts this year, according to London Stock Exchange data.
At 11:42 a.m. ET, the S&P 500 was down 89.56 points, or 1.61%, at 5,466.18, and the S&P 500 was down 459.67 points, or 2.55%, at 17,537.68.
Among other companies, AT&T Inc. (NYSE:) rose 4.9% after beating expectations on wireless subscriber additions, while solar inverter maker Enphase Energy Inc. (NASDAQ:) jumped 14.7% after beating second-quarter operating profit.
Declining issues outnumbered advancing issues by a ratio of 1.60 to 1 on the NYSE and 1.50 to 1 on the Nasdaq.
The S&P recorded 13 new 52-week highs and 6 new lows, while the Nasdaq recorded 112 new highs and 66 new lows.
