Joey Solitro
Stocks struggled mightily in choppy trading but failed to stack back-to-back up days together. The global flight from risk assets once again unnerved investors, as did some mixed corporate earnings reports.
Market participants hoping for a second day of gains after Monday's global rout in risk assets were bitterly disappointed today. Treasury yields plunged amid weak demand for a $42 billion auction of 10-year notes – a move which put subsequent pressure on equities.
"The recent rally in bonds is another 'tell' that fixed-income investors are pricing in economic weakness, with a flight to safety thrown in for good measure," writes Steve Sosnick, chief strategist at Interactive Brokers.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
It also hasn't helped that recent bellwether earnings reports have failed to exceed high expectations. Investors are taking a much closer look at companies' massive capital expenditures on all things generative artificial intelligence (AI) and wondering when those investments might bear fruit. After all, one company's costs are another company's revenue.
"Earnings are a problem," Sosnick adds. "Or more specifically, investors' reaction to them is a problem. Sure, we're getting our usual high percentage of earnings per share [EPS] beats, but that's no longer sufficient. Stocks that are priced to perfection require perfection, so the slightest slip-up in revenues, EPS or guidance is enough to trip up stocks that have sustained huge rallies – especially in big tech and semiconductors."
At the closing bell, the blue chip Dow Jones Industrial Average was off 0.6% at 38,763, while the broader S&P 500 fell 0.8% to 5,199. The tech-heavy Nasdaq Composite declined 1.1% to end at 16,195.
Stocks on the move
Speaking of the market punishing stocks after earnings, there were several notable examples from Wednesday's session.
Walt Disney (DIS) stock tumbled 4.5% despite the entertainment giant beating top- and bottom-line expectations in its fiscal Q3 and raising its full-year profit forecast for a second straight quarter, now expecting earnings-per-share growth of approximately 30%, up from its previous forecast of 25% growth.
Disney, which happens to be one of analysts' top-rated Dow Jones stocks, said results were boosted by its direct-to-consumer (DTC) entertainment business, consisting of Disney+, Hulu and ESPN+, which combined to post a profit for the first time ever and one quarter ahead of the company's guidance.
True, DIS had a down day in a down market for more reasons than its earnings report. That said, long-term investors are right to take a skeptical view of the name at current levels. After all, Disney stock has been a buy-and-hold disaster.
Elsewhere, CVS Health (CVS) stock declined 3.2% after the pharmaceutical chain and healthcare benefits company reported mixed Q2 results and reduced its full-year profit forecast for a second consecutive quarter.
The company now anticipates earnings per share to arrive between $6.40 to $6.65, down from its previous forecast of at least $7.00. It's also guiding for cash flow from operations of approximately $9 billion compared to its previous forecast of at least $10.5 billion.
"The Company's guidance revision reflects continued pressure in the Health Care Benefits segment, partially offset by strong performance in the Health Services and Pharmacy & Consumer Wellness segments," CVS said.
Wall Street remains bullish on the healthcare stock. According to S&P Global Market Intelligence, the consensus analyst target price for CVS stock is $67.74, representing implied upside of more than 17% to current levels. Additionally, the consensus recommendation is Buy.
Super Micro Computer crash
Super Micro Computer (SMCI) stock plunged more than 20% after the AI server, software and infrastructure company came up short of earnings expectations for its fiscal fourth quarter.
The company also announced a 10-for-1 stock split. As we noted when Nvidia (NVDA) split its stock, stock splits are meaningless for retail investors.
More important for retail investors, SMCI results were mixed compared with analysts' expectations. As an AI stock, SMCI was priced to perfection, and yet it failed to deliver perfect results.
In a June report, Susquehanna analyst Mehdi Hosseini warned clients about the firm's "intensifying" cash burn.
"SCMI is indeed executing to the plan of 'mass customizing' AI server and rack solution, though the business model requires significant working capital commitment while the company is also committing capex to further expand capacity," wrote Hosseini, who rates the stock at Negative (the equivalent of Sell).
SMCI lost $7.1 billion in shareholder value Wednesday, or more than the entire market cap of American Airlines Group (AAL).
Related content
- Analysts' Top S&P 500 Stocks to Buy Now
- If You'd Put $1,000 Into IBM Stock 20 Years Ago, Here's What You'd Have Today
- Best Dividend Stocks to Buy for Dependable Dividend Growth
-
Fed's Rate Cuts Could Have Impacts You Might Not AnticipateUnderstanding how lower interest rates could impact your wallet can help you determine the right financial moves to make.
-
Past Performance Is Not Indicative of Your Adviser's ExpertiseMany people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
-
I'm want to give my 3 grandkids $5K each for Christmas.You're comfortably retired and want to give your grandkids a big Christmas check, but their parents are worried they might spend it all. We ask the pros for help.
-
Past Performance Is Not Indicative of Your Financial Adviser's Expertise
Many people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
-
I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us? A Retirement Psychologist Makes the CaseA retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
I'm a Financial Adviser: This Is How You Can Adapt to Social Security UncertaintyRather than letting the unknowns make you anxious, focus on building a flexible income strategy that can adapt to possible future Social Security changes.
-
I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
'Boomer Candy' Investments Might Seem Sweet, But They Can Have a Sour AftertasteProducts such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
-
AI Stocks Lead Nasdaq's 398-Point Nosedive: Stock Market TodayThe major stock market indexes do not yet reflect the bullish tendencies of sector rotation and broadening participation.
-
Got $100 to Gamble? These Penny Stocks Could Be Worth the RideVolatile penny stocks are high-risk plays with potentially high rewards. If you have $100 you can afford to lose, these three names are worth a look.
