[New York Stock Market] Tesla and AT&T Fall Around 10%... Nasdaq Down 0.8% on Earnings Disappointment

The three major indices of the U.S. New York stock market all closed lower on the 20th (local time) due to weak corporate earnings from Tesla, AT&T, and others, as well as the impact of economic indicators. Amid ongoing concerns about an economic slowdown, major Big Tech companies are also set to report earnings next week.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,786.62, down 110.39 points (0.33%) from the previous session. The large-cap-focused S&P 500 index fell 24.73 points (0.60%) to 4,129.79, and the tech-heavy Nasdaq index dropped 97.67 points (0.80%) to close at 12,059.56.

Among the S&P 500 sectors, all 10 sectors except for consumer staples declined. Notably, real estate, consumer discretionary, energy, technology, and communication stocks saw significant drops. Tesla, which disclosed disappointing first-quarter earnings after the previous day's close and formalized a low-margin, high-volume strategy, closed down 9.75% from the previous session. Microsoft (-0.81%), Apple (-0.58%), Nvidia (-2.96%), and Meta Platforms (-1.22%) also fell collectively.

American Express saw its first-quarter earnings per share (EPS) fall 1% to $2.40, missing Wall Street expectations. AT&T dropped more than 10% despite EPS beating estimates, as revenue fell short of expectations. Energy-related stocks such as Marathon Oil (-1.58%) and Phillips 66 (-1.76%) were also weak due to a decline in international oil prices. Additionally, BuzzFeed plunged nearly 20% after announcing it would lay off 15% of its staff and shut down its news division subsidiary, BuzzFeed News.

[Image source=Reuters Yonhap News]

Investors closely monitored the earnings and economic indicators of major companies amid ongoing recession concerns. According to FactSet, about 16% of S&P 500-listed companies have reported earnings so far, with 76% of those beating expectations. William Noday, Chief Investment Officer at US Bank Wealth Management, said, "Earnings reports have been mixed so far," adding, "Stock prices have reacted more to specific company results relative to expectations than to broad index trends." Art Hogan, Chief Market Strategist at B. Riley Financial, predicted that the upcoming Big Tech earnings reports next week would have a significant impact on the market.

Economic indicators were generally weak. The Conference Board reported that the March Leading Economic Index fell 1.2%, worsening from the previous month's -0.5%. This figure was also worse than the market expectation of -0.7%. Justyna Zawinska La Monica of the Conference Board stated, "The index has fallen 4.5% over the past six months due to worsening economic conditions ahead," and added, "The recession is expected to deepen and spread more broadly across the economy in the coming months." The Conference Board forecasts a recession starting in mid-2023.

On the same day, the Philadelphia Federal Reserve Bank released its April manufacturing index for its district, which dropped to -31.3 from -23.2 in the previous month, widening the decline. This was much lower than the Dow Jones estimate of -19.9. Home sales also decreased more than expected. According to the National Association of Realtors (NAR), March sales were 4.44 million, down 2.4% from the previous month, exceeding the Dow Jones forecast of a 2% decline to 4.49 million.

Weekly new unemployment claims in the U.S. also exceeded expectations, rising for the second consecutive week. Last week (April 9?15), new unemployment claims increased by 5,000 to 245,000. Continuing claims, which represent those filing for unemployment benefits for at least two weeks, rose by 61,000 to 1.87 million, the highest level since November 2021. This suggests that it is taking longer for unemployed workers to find new jobs. Although still historically high, this is interpreted as an additional signal that the labor market overheating, which the Federal Reserve (Fed) has been concerned about, is gradually cooling down.

The market currently strongly expects the Fed to implement a 0.25 percentage point rate hike in May, known as a baby step. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures markets are pricing in more than an 84% chance of a baby step in May. The market's earlier expectations for rate cuts in the second half of the year have weakened compared to a few weeks ago.

Loretta Mester, President of the Cleveland Federal Reserve Bank, said in a speech that while recent progress has been made in easing inflation, it remains "still high," reinforcing the need for tightening. She stated, "We are much closer to the end of the tightening journey," but added, "Interest rates need to rise above 5%, keeping real rates in positive territory for some time, and move toward a more restrictive monetary policy." Considering the current U.S. benchmark interest rate is 4.75?5%, this can be interpreted as support for a 0.25 percentage point increase in May.

In the New York bond market on the same day, U.S. Treasury yields fell. The 10-year U.S. Treasury yield hovered around 3.53%, while the 2-year yield, which is sensitive to monetary policy, was around 4.14%. The dollar index, which measures the value of the U.S. dollar against six major currencies, declined about 0.15% to 101.8.

International oil prices fell to their lowest level since the end of March. On the New York Mercantile Exchange, the May delivery West Texas Intermediate (WTI) crude oil price closed at $77.29 per barrel, down $1.87 (2.36%) from the previous session.