New York Stock Market Falls on Alphabet and Tesla Earnings Disappointment... Weakness in Tech Stocks

Concerns Over Big Tech Stock Pressure
Next Week Focus on MS and Apple Earnings
Q2 GDP on 25th, June PCE on 26th Announced

The three major indices of the U.S. New York stock market showed a downward trend in the early trading hours on the 24th (local time). As companies continue to release their second-quarter earnings, disappointment over the results of Alphabet, Google's parent company, and Tesla released the previous day is dampening investor sentiment.

As of 9:42 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was down 0.39% from the previous close, standing at 40,200.51. The S&P 500, which focuses on large-cap stocks, was trading down 1.06% at 5,496.86, and the tech-heavy Nasdaq index was down 1.77% at 17,679.67.

By stock, Alphabet is down 4.06%. Alphabet reported second-quarter revenue of $84.74 billion and earnings per share (EPS) of $1.89, exceeding Wall Street estimates (revenue of $84.19 billion and EPS of $1.84). However, disappointment emerged as YouTube ad revenue came in at $8.66 billion, below the expected $8.93 billion, leading to selling pressure. Tesla, which posted earnings below market expectations, is plunging 10.71%. Tesla reported second-quarter revenue of $25.5 billion and EPS of $0.52, falling short of market research firm LSEG’s estimates of $24.77 billion and $0.62 EPS, respectively.

Other tech stocks are also broadly weaker. Apple is down 1.84%, Microsoft (MS) and Nvidia are down 1.31% and 3.43%, respectively. Meta, Facebook’s parent company, is down 3.7%, and Amazon is down 0.93%.

Investors who reviewed the second-quarter earnings of Alphabet and Tesla are concerned about valuation pressures on tech stocks, which have rallied in the first half of the year. With other Magnificent Seven companies such as MS and Apple set to release earnings next week, future stock price trends are expected to be influenced by upcoming tech earnings. According to market research firm FactSet, more than 20% of S&P 500 companies have reported second-quarter earnings, with over 80% beating estimates. However, given the significant share of overall profits accounted for by tech stocks, the earnings of big tech companies remain crucial.

Scott Rubner, a specialist at Goldman Sachs, analyzed, "The bar for earnings from the most important companies on Earth is set too high," adding, "Both revenue and earnings forecasts must be strong."

Investors are now awaiting the preliminary second-quarter GDP growth rate to be released on the 25th and the June personal consumption expenditures (PCE) price index to be announced on the 26th. The core PCE price index, which the Federal Reserve (Fed) closely monitors, is expected to have risen 0.1% month-over-month. Accordingly, the second-quarter core PCE inflation rate is anticipated to have fallen below the Fed’s 2% target. The second-quarter GDP growth rate is forecasted at an annualized 1.9% quarter-over-quarter, which is likely to bolster expectations for a soft landing.

A rate cut in September is now considered a foregone conclusion. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market is fully pricing in a rate cut of at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in September.

U.S. Treasury yields are showing a slight decline. The 2-year Treasury yield, sensitive to monetary policy, fell 3 basis points (bp) from the previous trading day to 4.4%, while the 10-year Treasury yield, a global benchmark for bond yields, dropped 1 bp to 4.22%.

International oil prices are on the rise. West Texas Intermediate (WTI) crude oil rose $0.82 (1.07%) from the previous trading day to $77.78 per barrel, and Brent crude, the global oil price benchmark, increased $0.62 (0.77%) to $81.63 per barrel.