Joey Solitro
Markets wobbled once again Wednesday after disappointing earnings from key mega-cap tech stocks fueled concerns that the bull market's AI-driven gains may have gone too far too fast. Some mixed economic news didn't help sentiment either.
Equities gapped lower at the open and stayed in negative territory all session long after quarterly reports from Magnificent 7 stocks Alphabet (GOOGL) and Tesla (TSLA) sparked a selloff in the sector responsible for the majority of the bull market's gains.
Market participants entered second-quarter earnings season looking for indications as to when the massive hype and capital investments surrounding all things AI will begin to pay off. Disappointing results from two of the largest AI players by market cap only added fuel to an ongoing drawdown in pricey mega-cap names.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Econ news comes in mixed
Traders and investors also had to contend with some more mixed readings on economic activity and the state of the housing market.
S&P Global said its Flash Manufacturing Purchasing Managers Index (PMI) declined to 49.5 in July from 51.6 in June, reaching a six-month low and "signaling a deterioration in business conditions within the goods-producing sector for the first time since December." Readings below 50 indicate contraction.
Meanwhile, its Flash Services PMI rose to 56.0 in July from 55.3 in June, a 28-month high. "The service sector outperformed manufacturing for a fourth straight month, with the sectoral divergence widening to the greatest since June of last year," S&P said.
The data also showed that the average prices for goods and services rose at the slowest rate since January – and the second-slowest rate since October 2020. This is good news in the Fed's fight against inflation.
Elsewhere on the economic calendar, the Census Bureau reported that new home sales came in at a seasonally adjusted annual rate of 617,000 in June, a 0.6% decline from the revised May rate of 621,000 and a 7.4% decline from the same period in 2023. Economists expected new home sales to rise to 640,000.
"The housing market continues to lose momentum," says Wells Fargo economist Jackie Benson. "Despite increased use of builder incentives, pervasively high financing costs appear to be one hurdle that builders cannot overcome at the present moment."
By the closing bell, the broader S&P 500 had its worst session since late 2022, falling 2.3% to 5,427. The tech-heavy Nasdaq Composite also had its worst day since 2022, shedding 3.6% to 17,342. The blue chip Dow Jones Industrial Average fell more than 500 points, or 1.3%, to finish at 39,853.
"Markets are getting punished as investors sell risk assets and pick up safe havens while drifting into hibernation," writes José Torres, senior economist at Interactive Brokers. "For stocks, nothing is working. Despite recent selling, the S&P 500 is still trading close to 22 times earnings amidst quarterly results that aren't impressing investors in aggregate."
Mega-cap tech not so magnificent
Alphabet stock fell 5% despite topping revenue and earnings expectations for its second quarter. The search and advertising giant reported double-digit growth in advertising revenue and over 28% growth in its cloud unit.
Alphabet's total advertising revenue increased 11.1% year-over-year to $64.6 billion, including 13% year-over-year growth at YouTube to $8.7 billion. Still, this was slower than the 13% rise in ad sales seen in Q1, which was the catalyst for today's slumping GOOGL share price.
Alphabet's Q2 results were solid, but second-half comparisons do get tougher for its advertising segments, says Jefferies analyst Brent Thill.
Tesla stock declined 12.3% after the electric vehicle maker reported mixed results for its second quarter. A bottom-line miss is likely one catalyst for Tesla's post-earnings slide, but it was exacerbated by news the company rescheduled its robotaxi event.
Indeed, on Tesla's conference call, CEO Elon Musk said that the company will move its robotaxi unveiling event to October 10. The event was originally scheduled for August 8, but was delayed because Musk wanted to make "important changes to improve the vehicle."
Visa trouble
But perhaps no blue chip had a rougher day than Visa (V). The world's largest payments processor saw shares fall 4% to make Visa stock the worst performer in the price-weighted Dow.
Although Visa remains one of analysts' top-rated Dow Jones stocks, thanks to growth in payments volume, cross-border volume and processed transactions, the financial titan came up short of earnings and revenue estimates for its fiscal 2024 third quarter.
Visa shares are in negative territory on a year-to-date basis, but Wall Street is bullish on the blue chip stock. According to S&P Global Market Intelligence, the average analyst target price for V stock is $304.58, representing implied upside of about 19% to current levels. Additionally, the consensus recommendation is a Buy.
Related content
- Best Dividend Stocks to Buy for Dependable Dividend Growth
- 7 Best Robotics and AI ETFs
- Best Cheap Stocks To Buy Now (Under $10)
-
Stock Market Today: Stocks Stable as Inflation, Tariff Fears EbbConstructive trade war talks and improving consumer expectations are a healthy combination for financial markets.
-
What Trump’s 'Big Beautiful Bill' Means for Your Utility BillsIf passed, the 'Big Beautiful Bill' could make home energy upgrades more expensive and raise monthly costs. Here's how much more you might pay and how to prepare.
-
Stock Market Today: Stocks Stable as Inflation, Tariff Fears Ebb
Constructive trade war talks and improving consumer expectations are a healthy combination for financial markets.
-
Eight Estate Planning Steps to Protect Your Loved Ones (and Your Legacy)Two-thirds of Americans don't have an estate plan. If you're one of them, these are the essential steps to take now to prevent problems for your family later.
-
The Six Pros This Adviser Says You Need to Sell Your BusinessSelling your business isn't as simple as getting the best price and walking away. These are the six professionals you'll need to get a deal across the finish line.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build WealthConsistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key PiecesIf retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or RelocateHomeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and FriendsWhat starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
