4.05pm: Tesla shares sink 10% on weaker earnings
US stocks finished the day lower on weaker-than-expected earnings from Tesla and economic data that signaled a contracting economy.
At the close, the Dow lost 110 points to 33,787, while the S&P 500 eased 25 points at 4,130 and the tech-heavy Nasdaq slipped 98 points to 12,060.
12:06pm: Tech sector follows Tesla lower
Shortly after midday, the Dow was down 86 points, 0.3%, to 33,811, the Nasdaq Composite lost 48 points, 0.4%, to 12,109 and the S&P 500 slipped 18 points, 0.4%, to 4,136. The small-cap Russell 2000 index declined 12 points, 0.7%, to 1,738.
The Philadelphia Fed manufacturing index dropped to its lowest level since May 2020 this morning. That, coupled with rising jobless claims, has sparked fears over a contracting economy — particularly if the Fed hikes interest rates again.
“If the Fed stays the course, broad financial conditions should continue to tighten, the economy should decelerate into recession, and stocks should trade down sharply,” Wolfe Research’s Chris Senyek said in a note to clients.
Meanwhile, the technology sector is struggling in the wake of a margins expectations miss from Tesla. Shares of the EV maker are down nearly 10% to $163.51, and other names including Microsoft, Apple and Nvidia are also lower.
9:40am: Initial jobless claims rise again
US stocks struggled at the open weighed down by disappointing quarterly earnings as initial jobless claims increased for the third consecutive week, a sign of softening in the labor market.
Initial jobless claims came in at 245,000, above the consensus analyst expectation of 240,000, the same number of claims reported last week.
BRI Wealth Management portfolio manager Tom Hopkins said the continuing weakness in the labor market may be taken positively by markets as it strengthens bets that the Federal Reserve could cut rates multiple times this year. He noted that he believed these bets were premature.
“Last week’s inflation print showed the Fed is winning its fight against inflation though core inflation remains stubborn,” he said. “The Federal Reserve may be tempted by at least one more hike in May.”
He pointed out that, despite jobless claims slowly increasing, the labor market in the US remains tight.
“The tight job market forces employers to raise wages to attract and keep staff, magnifying inflationary pressure on the American economy,” Hopkins said.
“Its already well documented that policymakers would only consider cutting rates after seeing a dramatic deterioration in the labour market and signs that a recession is imminent, and whilst there are signs of a little softening, I don’t think we are there yet to meaningfully change the Fed’s current views.’’
Just after the opening bell in New York, the Nasdaq had shed 101 points or 0.8% at 12,056 points, the S&P 500 was down 29 points or 0.7% at 4,126 points, and the Dow Jones had fallen 160 points or 0.5% at 33,737 points.
Tesla shares had tumbled 7.4% at US$167.23, with investors concerned about the company’s declining margins following the release of its 1Q 2023 results after the market close yesterday.
American Express and AT&T also failed to impress investors with their latest results, down 5.6% and 7.4% respectively at the open.
7:50am: Tesla in reverse gear
Wall Street is likely to open lower as investors continue to pore over first-quarter earnings reports that reveal companies are operating under increasingly challenging economic conditions, including results from Tesla that show the electric vehicle maker's margins are under pressure.
Futures for the Dow Jones Industrial Average (DJIA) fell 0.5% in Thursday pre-market trading, while those for the broader S&P 500 index shed 0.7%, and contracts for the Nasdaq-100 declined 1%.
The main US benchmarks ended mixed on Wednesday as lacklustre earnings from a number of blue chips failed to ignite investors. The DJIA closed 0.2% lower at 33,897, while the Nasdaq Composite added 4 points to 12,157, and the S&P 500 was flat at 4,155.
“Markets have stalled over the past few days, with the latest corporate updates failing to move the dial,” commented Russ Mould, investment director at AJ Bell.
“A lot of companies are keeping their heads above water but there remain plenty of headwinds to cloud the outlook,” he added. “Later today we’ll get an update on US jobless claims, manufacturing activity and US home sales, helping to give a more up-to-date picture of the state of the country.”
Meanwhile, as earnings season progresses, Tesla fell 2% on Wednesday after announcing its sixth set of price cuts this year and sank a further 7% in after-hours trade on the back of its quarterly earnings.
“Last night’s Q1 announcement saw the shares slip back further in after-hours trading as modest misses on revenues and profits, along with a sharp decline in total gross margins weighed on sentiment, making the prospect of a revisit of the March lows at $164 a possibility,” said Michael Hewson, chief market analyst at CMC Markets UK.
“Even though Tesla once again delivered a record quarter for deliveries in Q1, with 422,875, this was only a modest increase on the 405,278 delivered in Q4. Last night’s Q1 numbers saw that margin number fall further to 19.3%, below expectations of 21.2%, even as profits came in at $0.85c a share, and revenues came in at $23.33 billion, a rise of 24% year on year, although down on Q4’s $24.3 billion,” he added.
Companies reporting today include Philip Morris, AT&T, American Express, and Adobe, among others.