4:15pm: Investors question AI payoff:
US stocks attempted an unsuccessful rebound as the Nasdaq and S&P 500 extended Wall Street's recent Big Tech sell-off, driven by concerns over the artificial intelligence trade losing momentum.
At the close, the S&P 500 dropped 0.5% to reach 5,399 points and the Nasdaq sank 0.9% at 17,182, while the Dow Jones managed a modest gain of 0.2% to end trading at 39,935.
Investors are increasingly questioning when tech companies' significant investments in AI will pay off. Unimpressive earnings from Alphabet and Tesla earlier in the week have further dampened expectations for Big Tech's AI-driven valuations.
12:05pm: Strong GDP data provides support
Stocks regained their footing by the midday point of trading Thursday as investors reassessed after a significant decline in Big Tech stocks due to AI concerns.
The Dow Jones Industrial Average rose 0.8% and the S&P 500 gained 0.4%, recovering somewhat from Wednesday's losses. The Nasdaq reversed early losses to gain 0.3%, following its worst day since October 2022.
Globally, European and Japanese markets also fell, while traders adjusted expectations for Federal Reserve rate cuts based on recent economic data.
The rebound suggests a positive reaction to GDP figures released earlier Thursday morning.
“The stronger than expected data on GDP and inflation suggest the Fed must be wary, but is unlikely to alter market expectations for a September rate cut,” John Lynch, Chief Investment Officer for Comerica Wealth Management commented.
“Weak orders provide the Fed with further justification for a cut, and the S&P 500 may find some near-term support at current levels around the 50-day moving average. Yet today’s data should remind investors that while 1-2 cuts in coming months is warranted, an aggressive easing cycle next year is unlikely.”
Elsewhere, Ford deepened its share losses, trading down over 16% following a major earnings miss Wednesday after the bell.
10.10am: Topsy turvy
Among reporting companies today, strong results and a return to dividend from cruise operator Royal Caribbean results in its shares falling, while American Airlines saw its shares climb after it slashed its forecasts.
Royal Caribbean Cruises Ltd (NYSE:RCL) shares slumped more than 5% as projected higher cruise costs tainted its better-than-expected performance during the second quarter.
The cruise operator now expects its full-year cruise costs to rise about 6%, above its earlier forecast of a 5.5% increase.
Elsewhere, American Airlines Group Inc (NASDAQ:AAL, ETR:A1G) flew 2% higher despite slashing its profit forecast for the year, attributing the revision to its recent pricing strategy which involved selling tickets at lower rates to fill planes.
In an effort to boost summer travel, American Airlines sold cheaper tickets and targeted customers from smaller cities rather than high-paying business travelers. However, this approach led to diminished revenue per seat and lower-than-expected profits.
9.59am: The new rotation
The mass US stock rotation continued on Thursday, with the tech-loaded Nasdaq tumbling another 1% in the first half hour, and the S&P 500 falling 0.3%.
Stock markets have not given up the ghost by any means, with some fight still in the bulls yet, as the blue-chip Dow Jones rose 0.3% and the small caps of the Russell 2000 climbed 0.6%.
Of the top 15 largest stocks on the Nasdaq, only three are higher, one of those being Tesla.
Nvidia is down 2.3% and Broadcom down 1%, with other semiconductor names in the red also, while there are modest gains for Apple, Alphabet and Amazon.
9.15am: US GDP grows faster than expected
US economic growth was faster than expected in the second quarter, the latest update from the Bureau of Economic Analysis shows.
The advance estimate of second quarter US gross domestic product (GDP) showed the economy grew 2.8% compared to a year earlier, much faster than the 2% economists has forecast on average.
It was also faster first quarter GDP, which was revised down to 1.4%.
Meanwhile, separate data shows durable goods orders plunged 6.6% in June, well below the consensus forecast of a small 0.3% gain.
Orders excluding transportation rose by 0.5%, a bit above the consensus, 0.2%, while nondefense capital goods orders ex-aircraft jumped 1.0%, also above the consensus, 0.2%.
8.10am: Nasdaq sell-off could be extended
Tech stocks are expected to continue selling off on Thursday, extending losses from what was the worst day on Wall Street since 2022.
Nasdaq futures have fallen 0.35%, with S&P 500 futures 0.24% lower and Dow Jones futures are down less than 0.1%.
Overnight, a huge tech sell-off was sparked by underwhelming earnings from Alphabet and Tesla, which led to the S&P 500 dropping over 2% for the first time in over a year and its worst day since December 2022, with the Nasdaq Composite plunging 3.6% in its worst day since October 2022.
Tesla's shares decreased by more than 12%, and Alphabet's by over 5%, contributing to widespread tech sector losses, including Nvidia, Broadcom, and Arm, with the 'Magnificent 7' stocks in technical correction territory after falling over 10% from a high just two weeks ago.
This morning, Tesla and Nvidia shares are down over 1% premarket, while Apple, Microsoft, Alphabet and Meta Platforms are all down around 0.5%.
This is a "meltdown" says Kenny Polcari, chief market strategist for SlateStone Wealth, who said the sell-off was of the 'Magnificent 7' stocks drove the Nasdaq decline, while only utilities, energy and eealthcare were spared.
"It’s earnings season and the sector is priced to perfection…all we need is ONE thing to go wrong and BOOM! Down we go!"
He says the issue is that the AI story was allowed to "take on a life of its own... everyone just expected AI to be a revenue generator on day one. And now investors are questioning that assertion."
Market analyst David Morrison at Trade Nation says "investors are becoming increasingly twitchy", with next week seeing more earnings reports from other Mag 7 members Microsoft, Meta, Apple and Amazon.
With the pull-back taking the Nasdaq back to where it was in early June, he says many investors will also see this as a buying opportunity.
"But further gains are predicated on solid second quarter results, together with positive guidance for the current quarter. If that isn’t forthcoming, then expect more profit-taking to emerge."
So where has the money gone? Bonds, says Morrison, with Treasury yields dropping significantly as investors rushed for safety.
"Earlier this century, a move like this was often referred to as a ‘flight to quality’. But now, given the terrifyingly-high US national debt and surging deficit, that phrase can only be used ironically," he says.