Why Is the Market Selling Off?
Stocks Whipsaw After Steep Big-Tech Sell-off
Who's leading the Market?
Market Overview
U.S. stocks experienced volatility on Thursday as investors regrouped following a major sell-off led by Big Tech. Concerns over the timing of returns on AI investments influenced market movements.
- Dow Jones Industrial Average (DJI): Rose 0.8%
- S&P 500 (GSPC): Increased 0.4%
- Nasdaq Composite (IXIC): Recovered from early losses to hover near the flatline
Big Tech and AI Concerns
Stocks faced resistance as Wall Street questioned when tech companies' substantial investments in AI would begin to yield returns. Recent unimpressive earnings from Alphabet (GOOGL, GOOG) and Tesla (TSLA) dampened hopes for AI-driven growth, impacting investor sentiment.
Global Market Repercussions
The Big Tech sell-off had a ripple effect on global markets:
- Europe: Stoxx 600 (STOXX) fell over 1%
- Asia: Nikkei 225 (N225) dropped more than 3%, further impacted by a sudden gain in the yen (JPY/USD=X), pushing the Tokyo benchmark into technical correction territory
U.S. Economic Concerns
Doubts about the strength of the U.S. economy emerged as high-profile earnings misses raised concerns about consumer resilience amid historically high borrowing costs. Consequently, traders are now pricing in larger Federal Reserve rate cuts:
- Federal Reserve Rate Cut Expectations: A reduction of about 30 basis points by September and almost 70 basis points over 2024
- CME FedWatch Data: Increased odds of an earlier-than-expected rate cut in July
Economic Data Highlights
An advance estimate of GDP showed the U.S. economy grew at an annualized pace of 2.8% in the second quarter, exceeding the 2% growth forecast by economists surveyed by Bloomberg. The upcoming Personal Consumption Expenditure Price Index update for July will provide the Federal Reserve with additional data to consider regarding rate cut timing.
Corporate Highlights
- Ford (F): Shares tumbled 16% after posting a quarterly profit miss.
- Southwest Airlines (LUV): Shares rose more than 5% following the announcement of a significant change from its decades-long practice of open seating to assigned seating with premium options. This change comes amid pressure from activist investor Elliott Management, who has called for a new, independent board of directors.
Nasdaq Recovery
The Nasdaq Composite (IXIC) flipped into green territory, erasing early session losses of more than 1.5% to climb into positive territory. By 11:00 a.m. ET, the tech-heavy index was up 0.2%. Notably, shares of Nvidia (NVDA) recovered from early session declines of over 4.5%.
Conclusion
Thursday's stock market performance highlights the ongoing volatility driven by investor concerns over Big Tech earnings and AI investment returns. While the broader market showed resilience with modest gains in major indices, the future trajectory will depend on upcoming economic data and corporate earnings reports. The market's focus will remain on the Federal Reserve's actions and the ability of tech giants to justify their high valuations amidst economic uncertainties.