S&P and Nasdaq fall to multi-week lows as Tesla, Alphabet weigh
Business
S&P and Nasdaq fall to multi-week lows as Tesla, Alphabet weigh
(Reuters) - The S&P 500 and Nasdaq slumped to multi-week lows on Wednesday after Tesla and Alphabet disappointed with lackluster earnings, prompting investors to question if the Big Tech- and AI-fueled 2024 equity rally was sustainable in the long run.
As the first of the Magnificent Seven stocks reported quarterly numbers, investors had been awaiting new data to see if lofty valuations were justified. With these seven companies having such sway over markets, their performance was bound to have wider repercussions.
Google parent Al shed 4.9% despite a second-quarter earnings beat, as investors focused on an advertising-growth slowdown and the company flagged high capital expenses for the year.
"There was obviously nothing positive (in the results) and this market requires something to exceed expectations to keep itself going," said Tom Plumb, chief executive and portfolio manager at Plumb Funds.
Alphabet's losses underscored the high earnings bar for the so-called Magnificent Seven, a set of mega cap tech stocks that have notched double- and triple-digit percentage gains in 2024, riding on optimism around AI adoption and expectations of an early start to the Federal Reserve's interest-rate cuts.
Chary of the high valuation of these companies, market participants started shifting to underperforming sectors in mid-July.
S&P 500 stocks, on average, are trading at a 21.4 price-to-earnings ratio, compared with the historical average of 15.9, LSEG data showed. Of the index companies that have reported second-quarter earnings to date, 78.9% have beaten results estimates.
A rotation into smaller-cap stocks has also been eyed, although they did not escape the ripples the megacaps caused: the Russell 2000 was down 0.5%.
