More drops for Big Tech pull Wall Street nearly 10% below its summertime high
Stocks on Wall Street tumbled Thursday, dropping nearly 10% below their high mark for the year, after big-name companies warned that an uncertain global economy may hurt their profits.
The Standard & Poor’s 500 fell 1.2% for its ninth drop in 11 days and touched its lowest level in five months. Another steep fall for tech stocks dragged on the market, sending the Nasdaq composite to a market-leading loss of 1.8%, while the Dow Jones industrial average sank 251 points, or 0.8%.
Meta Platforms was among the market’s heaviest weights and tumbled 3.7% even though the parent company of Facebook and Instagram reported fatter profit and revenue for the summer than analysts expected.
Investors may have been spooked by the company’s warning that it’s seen some initial softness in advertising due to the latest Israel-Hamas war, and analysts said the company gave a wider range than it has in the past for its forecast of upcoming revenue.
Meta is one of the “Magnificent Seven” Big Tech stocks that were responsible for a huge chunk of the S&P 500’s gains through the first seven months of the year. Because they’re so immense in size, their stock movements carry extra weight on the S&P 500 and other indexes. And their tremendous rallies earlier this year mean big expectations have built for them, raising the bar for their profit reports.
Two of the Magnificent Seven offered reports earlier this week that drew differing responses on Wall Street, with Alphabet tumbling 9.5% and Microsoft rising 3.1% on Wednesday.
Thursday’s further drops for tech shares came even though yields eased in the bond market, which has been at the center of sharp moves for financial markets around the world for months.
The yield on the 10-year Treasury fell to 4.84% from 4.96% late Wednesday. Earlier in the morning, it was again nearing its highest level since 2007. Yields swung after reports showed the U.S. economy continues to storm ahead despite much higher interest rates that have already lashed the stock market.
A preliminary estimate suggested the U.S. economy’s growth accelerated during the spring by much more than economists expected. A separate report indicated the U.S. job market remains remarkably solid, with relatively few layoffs across the country. And the European Central Bank opted to refrain from raising interest rates for the first time in more than a year.
Stocks have been under pressure since the summer as Treasury yields have spurted higher in the bond market. Those yields have been catching up with the main interest rate controlled by the Federal Reserve, which is at its highest level since 2001 as the central bank tries to get high inflation under control.
The nation’s economy expanded at a robust 4.9% annual rate as Americans defied higher prices, rising interest rates and recession forecasts and spent.
Higher bond yields make investors less willing to pay high prices for stocks and other investments. They also slow the economy bluntly, raising the risk of a recession in the future, and raise the pressure across the financial system.
Thursday’s reports show the U.S. economy is clearly not in a recession. But Wall Street is more concerned about what will happen rather than what’s in the past, and the worry is that a solid economy could put continued upward pressure on inflation. That in turn could push the Federal Reserve to keep interest rates high for a long time to fully defeat high inflation. And that would mean eventual weakness for the economy and corporate profits.
“The Fed’s job isn’t done, and it does not appear that higher interest rates are doing the job for them,” said Quincy Krosby, chief global strategist for LPL Financial.
In the near term, traders overwhelmingly expect the Federal Reserve to hold steady on interest rates at its next meeting, which ends Wednesday. That would mark a second straight meeting where the Fed did not hike its main interest rate, which it has pulled above 5.25% from near zero early last year.
“Higher and hold, yes,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “Higher and hiking, no.”
Even better-than-expected profits from some of Wall Street’s most influential companies haven’t been enough to arrest the market’s slide.
Economists are preoccupied with making predictions about the future path of the U.S. economy, but keep getting fooled by the truth.
The majority of companies have been topping analysts’ profit expectations for the summer, and the hope is still that S&P 500 companies can report the first overall growth in a year. But several big-name companies were falling Thursday after disappointing results or forecasts for upcoming trends.
UPS sank 5.9% after it cut its forecasts for some full-year results because of uncertainty about where the global economy is heading. Investors see UPS as a window into the global economy’s strength because it ships so many products around the world.
State attorneys general across the country started to investigate the effects of Facebook and Instagram on young people in 2021.
Align Technology, which makes Invisalign systems that straighten teeth, also said an uncertain global economy may persuade potential customers to hold off. Its stock tumbled 24.9% after it reported weaker profit and revenue for the latest quarter.
On the winning side of Wall Street was IBM, which rose 4.9% after reporting stronger profit and revenue for the latest quarter than analysts expected.
All told, the S&P 500 fell 49.54 points to 4,137.23. The Dow dropped 251.63 points to 32,784.30, and the Nasdaq sank 225.62 points to 12,595.61.
In stock markets abroad, indexes fell modestly in Europe after falling more sharply in Japan and South Korea. Stocks edged higher in Shanghai.
AP writer Elaine Kurtenbach contributed to this report.
