[New York Stock Market] Despite US Q2 Surprise Growth, Big Tech 'Sell-Off'... Nasdaq Down 0.93%

Big Tech Sell-Off Continues Amid Alphabet and Tesla Earnings Disappointment
Q2 Growth Rate at 2.8%... Inflation Rise Slows
Steady Expectations for Soft Landing and September Rate Cut
June PCE Inflation Data Released on 26th in Focus

The three major indices of the U.S. New York stock market closed mixed on the 26th (local time). Investors continued to sell some big tech stocks following the previous day, and the rotation from large-cap to small- and mid-cap stocks also persisted. The U.S. economy achieved a second-quarter growth rate that exceeded expectations, raising hopes for a soft landing.

[Image source=Yonhap News]

On this day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed up 81.2 points (0.2%) at 39,935.07 compared to the previous trading day. The large-cap-focused S&P 500 index fell 27.91 points (0.51%) to 5,399.22, and the tech-heavy Nasdaq index dropped 160.69 points (0.93%) to 17,181.72.

Among individual stocks, weakness in technology shares was prominent. Alphabet, Google's parent company, and Tesla, which released their second-quarter earnings on the 23rd, failed to meet investors' expectations, amplifying doubts about the AI rally. Alphabet fell 2.99%. Nvidia declined 1.72%, while Microsoft (MS) and Meta, Facebook's parent company, dropped 2.45% and 1.7%, respectively. In contrast, Tesla, which had plunged 12.33% the previous day, rose 1.97%. Ford plummeted 18.36% due to earnings below market expectations, marking its largest drop in 16 years since 2008. Chipotle fell 1.85% despite reporting earnings that exceeded forecasts.

The trend in tech stocks is expected to face another turning point depending on the upcoming earnings reports from other Magnificent 7 companies such as MS and Apple next week.

Adam Sarhan, CEO of 50 Park Investments, said, "There is a change happening on Wall Street," diagnosing that "AI stocks, which had been driving the upward trend, are now leading the decline." He added, "In a bull market, one sector leads, then pauses, adjusts, and passes the baton to another sector. You can think of it as a relay race moving from one sector to another."

Case Runner of Truist stated, "The recent volatile market movements are as expected and will continue," adding, "The basic forecast is that the long-term bull market will remain intact." He further noted, "It will often take two steps forward and one step back."

The second-quarter U.S. economic growth rate announced that morning was stronger than expected. According to the U.S. Department of Commerce's Bureau of Economic Analysis (BEA), the advance estimate of real GDP for the second quarter increased by 2.8% annualized compared to the previous quarter. This is double the first quarter's growth rate (1.4%) and significantly exceeded the Wall Street Journal (WSJ) experts' forecast of 2.1%. Household spending, which accounts for two-thirds of the U.S. real economy, rose 2.3% quarter-over-quarter, a substantial recovery compared to 1.5% in the first quarter. Both goods and services expenditures increased.

Inflation appeared to have eased. The core Personal Consumption Expenditures (PCE) price index, excluding food and energy, slowed from 3.7% in the first quarter to 2.9% in the second quarter. Investors are expected to confirm more detailed inflation trends through the June PCE price index to be released the following day.

Stephen Brown, an economist at Capital Economics, said, "With the second-quarter GDP growth rate at 2.8%, exceeding expectations, the Federal Reserve (Fed) will likely feel somewhat comfortable maintaining its policy at next week's Federal Open Market Committee (FOMC) meeting." However, he added, "Recent easing in labor market conditions and signs of slowing inflation suggest strong grounds for a rate cut at the September FOMC meeting."

Last week, U.S. initial jobless claims fell short of market expectations. According to the Department of Labor, initial jobless claims for the week of July 14?20 totaled 235,000, below both the expert forecast of 237,000 and the revised figure of 245,000 for the previous week. Continuing claims, which count those claiming unemployment benefits for at least two weeks, stood at 1,851,000 for the week of July 7?13, also below the market forecast of 1,860,000 and the revised previous week's figure of 1,860,000.

The stronger-than-expected second-quarter GDP and easing inflation have raised hopes for a soft landing of the U.S. economy and support expectations for a rate cut in September. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market fully reflects a 100% probability that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting.

U.S. Treasury yields showed mixed movements. The 10-year U.S. Treasury yield, a global bond yield benchmark, fell 3 basis points (bp) from the previous day to around 4.24%. The 2-year U.S. Treasury yield, sensitive to monetary policy, rose 2 bp to about 4.43%.

International oil prices rose on the stronger-than-expected U.S. economy. West Texas Intermediate (WTI) crude oil closed at $78.28 per barrel, up $0.69 (0.89%) from the previous trading day, while Brent crude, the global oil price benchmark, rose $0.66 (0.81%) to $82.37.