A slide in tech behemoths soured the mood Thursday as disappointing earnings cast doubt on the pillars of a record first-half for the Nasdaq 100 this year.
Futures on the Nasdaq 100 fell 0.8% with Netflix set for its biggest intraday decline since December after missing sales estimates and disappointing on third-quarter revenue forecasts. Tesla also declined after profitability shrank in the second quarter, a sign the electric-vehicle maker’s margins are being squeezed. Meanwhile, Treasuries slid, hit by fresh economic data and commodity prices.
Traders are hitting the pause button on a blistering rally that has taken the tech-heavy Nasdaq 45% higher this year, outpacing the S&P 500’s 19% rise, on excitement about the potential for artificial intelligence.
Such returns on the back of a handful of tech stocks are “overdone” and may be the precursor to a downturn, Aegon Asset Management strategist Cameron McCrimmon warned.
U.S. Treasuries fell as initial claims for unemployment benefits fell last week to the lowest level in two months, suggesting resilient demand for workers as job creation moderates. Meanwhile, investors were also weighing the potential for agricultural commodities to drive inflation higher. Wheat prices extended their biggest daily surge in a decade on Wednesday after Russia warned that any ships to Ukraine would be considered military vessels.
“The breadth of returns on the S&P 500 has become increasingly narrow, driven by a few megacap tech stocks on AI optimism, which is a classic sign of an ageing bull,” McCrimmon wrote in a note.
On the flip side, a rare streak of muted declines for the S&P 500 suggests stocks have room to run. And while tech was the catalyst, the rally is starting to embrace a broader group of companies.
“Already we’re seeing improved breadth,” Lewis Grant, senior portfolio manager at Federated Hermes, wrote in a note. “If this earnings season can confirm that recession is not inevitable then we expect to seek opportunities throughout the market cap spectrum, with small and mid-cap growth names becoming interesting once more.”
In Europe, tech stocks including ASML slumped after Taiwan Semiconductor Manufacturing cut its outlook despite the boom in AI development. That was offset by Anglo American’s second-quarter beat which put the main equity gauge back into the green.
Elsewhere, the offshore yuan advanced 0.7% against the dollar and was the best performing currency in Asia after the People’s Bank of China stepped in Thursday, setting its daily fixing of the yuan with the largest bias since November.
China’s efforts to revive growth, from cutting rates to closing out a regulatory crackdown on tech firms, have so far done little to support growth in the world’s second-largest economy.
The dollar reversed losses to trade slightly stronger against major peers. Gold declined and oil was higher.
