The rotation out of tech stocks intensified Friday after a botched software update from cybersecurity provider CrowdStrike Holdings (CRWD) caused Microsoft (MSFT) Windows computer systems to crash globally. Disappointing earnings reports from several blue chips also weighed on equities.
Markets finished a wild week decisively in the red after the largest internet outage in history caused chaos at financial institutions, hospitals, airlines and numerous other industries. Friday's massive IT failure added fuel to the selloff in tech stocks – particularly the Magnificent 7 stocks that have contributed the majority of the bull market's returns.
The move out of pricey tech stocks saw the tech sector of the S&P 500 lose 1.5%. Consumer discretionary stocks, materials and energy sector names also led the market's decliners.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
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's been a volatile, mostly down week with stocks rotating from tech to small caps, then surprisingly back the other way," writes the markets team at Argus Research. "The massive, global IT glitch was not a welcome ending to a summer Friday. Wall Street is all in red and trying to shake off the week and get prepped for next week."
By the closing bell, the tech-heavy Nasdaq Composite declined 0.8% to 17,726, while the broader S&P 500 fell 0.7% to 5,505. Disappointing quarterly earnings from two blue-chip components helped the Dow Jones Industrial Average drop 377 points, or 0.9%, to 40,287.
Travelers, American Express slide
Travelers (TRV), which ranks low among analysts' ratings of all 30 Dow Jones stocks, lost 7.8% after quarterly revenue missed Wall Street's forecast. Compounding the damage, the insurer said catastrophe losses rose almost 2% to $1.51 billion, citing "severe wind and hail storms" across the eastern and central regions of the U.S.
The report prompted CFRA Research to cut its recommendation on TRV to Hold from Buy, citing claims from Friday's IT outage, among other factors.
"While these results, including an 11% rise in earned premiums and improved underwriting results, are positive, we attribute TRV's weakness today to industry-wide concerns over claims set to emerge from the IT outage, as well as TRV's disappointing Q2 production trends," analyst Cathy Seifert wrote in a note to clients. "We believe these rates of growth lag many peers and will lead to an erosion in underwriting profitability, removing a catalyst from the shares."
American Express (AXP, -2.7%), which is one of Warren Buffett's top stocks, likewise took a hit after reporting quarterly revenue that came up short of Street estimates. AXP posted earnings of $4.15 per share, which easily topped analysts' forecast for $3.24 a share.
Although revenue from card fees topped $2 billion for the first time in the most recent quarter, total revenue net of interest expense came only to $16.3 billion. Analysts expected revenue to hit $16.6 billion in the period.
"We are maintaining our Buy rating on American Express following second-quarter earnings, which were helped by continued strength in billed business," wrote Argus Research analyst Stephen Biggar. "Rising stock market and home equity values, along with greater interest income from bond portfolios, remain tailwinds for consumer spending for this billed-business cohort."
Cybersecurity stocks are still a buy
CrowdStrike Holdings (CRWD) stock shed 11.1% after sparking a spectacular global internet outage, but analysts say the knee-jerk trading is almost certainly overdone. True, crashing the net is bad, but at least the company didn't suffer an actual security failure.
"Our experts tell us that CrowdStrike is widely perceived as a premier cybersecurity provider, admired for its leadership in innovation as well as its track record," said Jordan Berger, analyst at global research firm Third Bridge. "Despite any associated impact to CrowdStrike's brand, the most significant aspect of today's CrowdStrike outage may be the fact that the outage was in fact not tied to any security incident or breach, and as such the company’s security track record remains untarnished for now."
The analyst added that the degree to which CRWD's face-plant helps competitors such as Palo Alto Networks (PANW, +2.2%) and SentinelOne (S, +7.8%) is unclear, "especially considering the amount of effort required to replace a large security provider."
The bottom line is that spending on global cybersecurity is rising fast – and that makes the best cybersecurity stocks worth a closer look.
Related content
- Analysts' Top S&P 500 Stocks to Buy Now
- Why Amazon Stock Is the Biggest Bargain After Amazon Prime Day
- How to Find the Best Oil Stocks to Buy
-
Here's Why I'm Upgrading to the iPhone 17The iPhone 17 is here. Learn what's new, where the best deals are and whether it's worth the switch.
-
September Fed Meeting: Live Updates and CommentaryThe September Fed meeting is a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. will do about interest rates.
-
September Fed Meeting: Live Updates and Commentary
The September Fed meeting is a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. will do about interest rates.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your WalletInterest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
-
Want to Shave 10 Hours Off Your Workweek? A Startup Expert Shows How AI Can HelpArtificial intelligence is overhauling how companies operate, freeing up entrepreneurs and their workers to skip the menial stuff and get down to business.
-
Dow Gains 617 Points as Rate Cuts Near: Stock Market TodayWednesday's economic data didn't shift Wall Street's expectations that the Fed is preparing for a rate cut at next week's meeting.
-
Hot August CPI Report Doesn't Shift the Rate-Cut Needle: What the Experts SayThe August CPI came in higher than forecast on a monthly basis, but Wall Street still expects a rate cut at next week's Fed meeting.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial PlannerHolding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Beyond Banking: How Credit Unions Serve Their CommunitiesCredit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
