In the wake of disappointing quarterly earnings reports from major players Tesla and Alphabet, US equity indexes experienced a notable decline. The quarterly results raised concerns about the capacity of the so-called "Magnificent Seven" stocks to sustain their dominant market positions. Specifically, the Nasdaq composite index plummeted 2.8%, landing at 17,493.5, while the S&P 500 retreated by 1.7% to a value of 5,460.4.
Similarly, the Dow Jones Industrial Average saw a 0.8% drop, concluding the day at 40,034.7 as trading concluded on Wednesday. The downturn in the technology sector was particularly pronounced, affecting communication services and consumer discretionary sectors that led the decline during intraday trading.
According to a research note from Deutsche Bank, the S&P 500 recorded a decline for the fourth time in five trading sessions. This marks a significant shift, as it represents the first occurrence of this pattern since April, compounding worries as the index grapples with its largest three-day decline since October of the previous year. Tesla’s stock was one of the notable casualties, with shares tumbling more than 10% during intraday trading, contributing to the index's downward momentum.
This drop came as a direct result of the electric vehicle maker’s Q2 earnings falling short of market expectations, primarily due to decreases in vehicle pricing and associated restructuring charges. On the other hand, Alphabet, which is Google’s parent company, reported Q2 earnings that surpassed forecasts.
However, it too did not escape unharmed as its YouTube advertising revenue failed to meet analysts' expectations, leading to a decline of over 4% in its stock price during intraday trading. Investor anxiety regarding the potential over-reliance on Big Tech stocks—which have propelled Wall Street to unprecedented heights—intensified after the disappointing earnings announcements, as pointed out in a market commentary from D.A.
Davidson. The technology sector also suffered from the burdens of mega-cap chipmakers such as Broadcom, Qualcomm, Taiwan Semiconductor Manufacturing Company, Nvidia, and Advanced Micro Devices, all of which exerted further pressure on stocks throughout the sector. The Magnificent Seven, a group of stocks including Apple, Meta Platforms, and Microsoft, has been a significant driver of gains reported by the S&P 500 and Nasdaq throughout the year.
It is worth noting that quarterly results from these three technology giants are expected next week, potentially indicating further volatility in the market. In the realm of economic indicators, the flash manufacturing report from S&P Global for July revealed a worrying downturn, with conditions falling to a seven-month low of 49.5, down from 51.6 in June.
This decline was unexpected, as most analysts forecasted no change based on a prior Bloomberg survey. The contraction in manufacturing aligns with findings from the Empire State and Richmond Fed indexes but stands in stark contrast to the Philadelphia Fed manufacturing index, which has pointed to expansion in that sector. In terms of housing market activity, new-home sales in the US also fell, declining to an annualized rate of 617,000 in June, down from a revised rate of 621,000 in May.
This figure fell short of the 640,000 rate that many economists had projected, marking a substantial 7.4% decrease compared to figures from a year prior. Market dynamics impacted Treasury yields, which exhibited mixed results, with the 10-year yield slipping slightly to 4.23%, while the 30-year yield ascended by 1.9 basis points to reach 4.49%.
Additionally, crude oil prices reflected an increase, with West Texas Intermediate oil prices climbing 1.3% to settle at $77.96 per barrel. The ongoing decline in US commercial crude oil inventories, outside of the Strategic Petroleum Reserve, further emphasized market sensitivities, with a drop of 3.7 million barrels recorded during the week ending July 19, surpassing the anticipated decline of 2.8 million barrels from a prior Bloomberg survey.
In commodities trading, precious metals also saw interesting movements, with gold prices climbing 0.6% to reach $2,421.01 per ounce and silver rising 0.2% to settle at $29.38..