Traders work on the floor of the New York Stock Exchange on June 24, 2024.
Brendan McDermid | Reuters
Stocks sold off Wednesday, weighed down by underwhelming reports from two megacap tech companies, leading the S&P 500 and the Nasdaq Composite to post their worst session since 2022.
The broad market index lost 2.31%, closing at 5,427.13, while the tech-heavy Nasdaq slid 3.64% to end at 17,342.41. The Dow Jones Industrial Average shed 504.22 points, or 1.25%, closing at 39,853.87.
Shares of Google parent company Alphabet fell 5% for their biggest one-day drop since Jan. 31, when they dropped 7.5%. Although Alphabet reported a top- and bottom-line beat, YouTube advertising revenue came in below the consensus estimate. Meanwhile, Tesla shares declined 12.3% — their worst day since 2020 — on weaker-than-expected results and a 7% year-over-year drop in auto revenue.
Other major tech stocks fell in sympathy with Alphabet and Tesla. Nvidia and Meta Platforms respectively lost 6.8% and 5.6%, while Microsoft slid 3.6%.
Those reports mark investors’ first look at how megacap companies fared during the second quarter. Reports from these names are of special interest to Wall Street as this small cohort is responsible for the bulk of this year’s gains.
Wednesday’s sell-off was caused by a perfect storm of an overbought market, high bar for earnings and a seasonally weak period for equities. That is why this pullback has not come as a total surprise to investors, according to Ross Mayfield, investment strategist at Baird.
“We would view this sell-off as ultimately quite viable, because it’s against the backdrop of a bull market. And a healthy correction inside of a bull market is something that we view as a place of opportunity, rather than a place to get defensive or to try to shield your money from this volatility,” Mayfield added in an interview with CNBC.
The small-cap Russell 2000 was down 2.1% on the day. For the month, however, the small-cap benchmark is up 7.2% as investors recently began rotating out of large-cap tech names into beaten-down smaller ones. In July, the Dow has gained 1.9%, while the S&P 500 has slipped 0.6% and the tech-heavy Nasdaq has fallen 2.2%.
Despite these misses from the megacap tech titans, the earnings season overall is off to a strong start. More than 25% of S&P 500 companies have reported their second-quarter earnings, with roughly 80% of them topping expectations, according to FactSet data.
Adding to investor concerns Wednesday morning was weaker-than-expected U.S. manufacturing data.
The U.S. PMI flash manufacturing output index fell to 49.5 in July, unexpectedly slipping into contraction territory as new orders, production and inventories declined. Economists had forecast a reading of 51.5, according to Dow Jones.
A Wednesday report also showed new home sales came in lighter than economists had expected for the month of June.