Thursday's stock market opened with mixed results, but the tech-heavy Nasdaq saw a significant decline due to disappointing updates from industry giants Tesla (TSLA) and Netflix (NFLX). As investors digested a new round of earnings reports, caution prevailed in the market.
US equities and Treasuries experienced declines as investors reacted to disappointing tech earnings and fresh signs of labour-market resilience, which could lead to another interest rate hike later this year.
The tech-heavy Nasdaq 100 dropped by 1.4%, with Netflix Inc. experiencing its biggest intraday decline since December due to a disappointing revenue forecast. Meanwhile, Tesla Inc. faced challenges as its profitability shrank in the second quarter, indicating pressure on the electric vehicle maker's margins. Additionally, an unexpected drop in weekly initial jobless claims prompted traders to speculate on higher odds of a quarter-point rate hike beyond the upcoming Federal Reserve meeting, leading to a nine basis points rise in the US 10-year yield.
These losses caused a pause in the impressive stock rally witnessed this year, with the S&P 500 rising 19% and the Nasdaq 100 gaining an astonishing 43%, all amid concerns about the Fed's aggressive tightening campaign amidst an uncertain economic outlook.
Lewis Grant, senior portfolio manager at Federated Hermes, expressed concerns about potential threats to the market's rebound, including conflicts in Ukraine, slowdown in China, and significant real estate losses for major US banks.
Aegon Asset Management strategist Cameron McCrimmon also warned that returns on tech stocks seemed "overdone" and might be a precursor to a market downturn. He pointed to the narrowing breadth of returns on the S&P 500 driven by a few mega-cap tech stocks, which he considered a classic sign of an aging bull market.
In Europe, tech stocks, including ASML Holding NV, slumped after Taiwan Semiconductor Manufacturing Co. cut its outlook despite the boom in AI development.
Elsewhere, the offshore yuan advanced 0.7% against the dollar after the People's Bank of China set its daily fixing with the largest bias since November. On the other hand, the dollar reversed losses and traded stronger against major peers. Gold prices declined, while oil pared back earlier gains.
Moving on to major moves in different markets:
- The S&P 500 fell 0.3% as of 10:56 a.m. New York time.
- The Nasdaq 100 fell 1.4%.
- The Dow Jones Industrial Average rose 0.8%.
- The Stoxx Europe 600 rose 0.4%.
- The MSCI World index rose 0.1%.
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- The Dollar Spot Index rose 0.3%.
- The euro fell 0.5% to $1.1144.
- The British pound fell 0.7% to $1.2849.
- The Japanese yen fell 0.5% to 140.31 per dollar.
- Bitcoin fell 0.9% to $29,710.
- Ether fell 0.6% to $1,887.59.
- The yield on 10-year Treasuries advanced nine basis points to 3.84%.
- Germany's 10-year yield advanced four basis points to 2.48%.
- Britain's 10-year yield advanced three basis points to 4.24%.
- West Texas Intermediate crude rose 0.5% to $75.70 a barrel.
- Gold futures fell 0.5% to $2,010.50 an ounce.
The Nasdaq Composite was down around 0.4% at the open, while the S&P 500 was roughly flat, and the Dow Jones Industrial Average was up 0.4%.
After-hours earnings from Netflix and Tesla disappointed investors, leading to declines in their stock prices. Netflix's second-quarter sales and third-quarter revenue projection missed consensus estimates, impacting the share price. However, analysts believe the reaction may be overblown as Netflix's focus on increasing profitability and free cash flow could lead to long-term growth.
Tesla's second-quarter margin also came in lower than expected due to continued vehicle price cuts, causing a drop in the company's stock price. Taiwan Semiconductor (TSM) stock also fell, as the company reported its first quarterly net income decline since 2019.
Despite these setbacks, Johnson & Johnson shares rose after the company beat earnings estimates, and American Airlines lifted its annual profit forecast.
Overall, the market remains cautious, and investors are closely monitoring tech stocks' performance as they navigate through the earnings season. Analysts urge patience and a long-term perspective amid uncertainties and potential market downturns.
Netflix's situation highlights the impact of its crackdown on password sharing and the introduction of a new advertising tier. Though these initiatives are expected to drive growth, it will take time for their full financial benefits to materialise.
Netflix executives called for patience and emphasized their focus on increasing profitability and free cash flow. The company's subscriber base grew by 8%, outpacing Wall Street estimates, and it remains optimistic about further growth.
On the other hand, Tesla's lower-than-expected margin in the second quarter resulted from ongoing vehicle price cuts, posing challenges for the automaker. Taiwan Semiconductor's stock decline came after reporting its first quarterly net income decline in years.
Amid these developments, the market continues to face uncertainties, but analysts believe that long-term investors should remain patient and monitor the evolving situations. The focus on tech stocks' performance and market dynamics remains critical as investors navigate through these uncertain times.
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