US equity markets experienced a setback after midday on Friday, largely driven by a concerning downturn in the technology sector amidst a historic global IT outage. Investors observed the Nasdaq Composite drop by 0.9%, landing at 17,710.2, while the S&P 500 fell by 0.7% to 5,504.9. The Dow Jones Industrial Average reflected a similar trend, declining by 1.1% to settle at 40,229.3.
The only sector resilient during this decline was healthcare, as all other sectors faced downward pressure. What is particularly alarming is that technology not only underperformed throughout the trading day but appears to be on course to close out the week—and even the month—on a weak note. Among the 13 technology companies boasting a market capitalization exceeding $200 billion, it was noted that 10 of these giants faced a downward trajectory this week.
The notable exceptions of SAP, Oracle, and Accenture stood apart from the general trend. While the Nasdaq and S&P 500 indexes are poised to decline for the week, the Dow is indicating a potential surge, hinting at an end to what has been described as narrow market leadership. According to a research note issued by D.A.
Davidson, traders are shifting their focus away from what can be described as “expensive mega-cap technology stocks” as they grapple with the ramifications of a global tech outage that has echoed across multiple industries. This widespread disruption can be traced back to a system update implemented by CrowdStrike for Microsoft Windows hosts, which has resulted in considerable operational challenges across sectors, including airlines and broadcasters.
Analysts have characterized this event as potentially the largest outage in the history of the information technology sector. CrowdStrike has publicly stated that it is “actively working with customers impacted by a defect found in a single content update for” Windows hosts. The cybersecurity firm has confirmed that it isolated the issue and has deployed a fix, asserting that the incident did not result from a cyberattack.
Scotiabank emphasized the severity of the situation, branding this incident as “the largest overall IT outage in history.” This news has undoubtedly impacted CrowdStrike's stock performance, which plummeted by 12% intraday, marking it as the most significant decliner among S&P 500 and Nasdaq constituents.
In other financial news, data released by the Bureau of Labor Statistics indicated that the unemployment rate rose in eight states in June while it fell in one state and remained unchanged in others. Company news was somewhat brighter with Intuitive Surgical witnessing a robust increase of more than 8% intraday, emerging as the top performer on both the S&P 500 and Nasdaq.
This surge followed the company’s Q2 results which exceeded market expectations. Additionally, the US 10-year Treasury yield saw a rise of 4.2 basis points, bringing it to 4.23%, while the two-year yield increased by 4.6 basis points, reaching 4.51%. In the commodities market, West Texas Intermediate crude oil experienced a decline of 2.5%, settling at $80.74 a barrel.
This decline raises apprehension regarding Chinese demand, especially following the ruling Communist Party's conclusion of a Third Plenum, which failed to address the lingering economic challenges faced in the country, including slowing growth and a daunting debt crisis within its real estate sector.
Gold prices also reflected a downturn of 2.3%, closing at $2,400.81 an ounce, while silver prices decreased by 3%, settling at $29.31. Overall, this volatile trading environment underscores the challenges faced by both individual companies and the equity markets as a whole, emphasizing the interconnectedness of technology performance and broader economic indicators..