In a surprising turn, US stock markets faced a significant downturn as the S&P 500 and Nasdaq Composite experienced their steepest declines since 2022. The drop was largely driven by underwhelming earnings reports from major tech companies like Tesla and Alphabet. This setback comes amid a broader reassessment of the market's high valuations and economic
In a surprising turn, US stock markets faced a significant downturn as the S&P 500 and Nasdaq Composite experienced their steepest declines since 2022. The drop was largely driven by underwhelming earnings reports from major tech companies like Tesla and Alphabet. This setback comes amid a broader reassessment of the market's high valuations and economic uncertainties, including mixed signals from US manufacturing data and disappointing new home sales figures. As European and Asian markets also reacted to these developments, the global financial landscape reflected a cautious mood among investors, highlighting the challenges and volatility in the current economic environment.
Key Takeaways:
S&P 500 and Nasdaq Post Steep Losses: The S&P 500 fell 2.31%, closing at 5,427.13, while the Nasdaq Composite dropped 3.64%, ending the day at 17,342.41. This marked the worst trading session for both indexes since 2022, highlighting investor concerns over recent earnings reports and the overall economic outlook.
Dow Jones and Small-Cap Stocks Affected: The Dow Jones Industrial Average declined by 504.22 points, or 1.25%, to 39,853.87. Meanwhile, the small-cap Russell 2000 index fell by 2.1%. Despite this daily decline, the Russell 2000 is up 7.2% for the month, as investors shift from large-cap tech stocks to smaller, more diverse companies.
European Markets Close Lower: European stock markets ended the day in negative territory, with the pan-European Stoxx 600 index down 0.6%. The FTSE 100 index dropped by 0.17%, and the CAC 40 index fell by 1.09%. Notable movements included Deutsche Bank falling over 8% after breaking a 15-quarter profit streak and luxury group LVMH dropping 4.7% following a revenue miss. Meanwhile, German consumer sentiment showed significant improvement heading into August, with the GfK Consumer Climate index rising to -18.4, up from -21.6 in July.
Asian Markets React to Global Trends: In Asia, markets mirrored the global downturn, with Hong Kong's Hang Seng index falling 1.1% and Japan's Nikkei 225 declining by 1.11%, hitting a one-month low. The CSI 300 index in mainland China slipped 0.63%. The declines were influenced by disappointing earnings from US tech giants and local economic data, including Japan's PMI, which indicated a return to growth. South Korea's Kospi index dropped 0.56%, while Australia's S&P/ASX 200 remained relatively flat, closing at 7,963.7.
Spain’s Santander Posts Strong Earnings: Banco Santander reported a 20% year-over-year increase in net profit for the second quarter, reaching 3.207 billion euros. This growth was driven by strong performance in its retail, wealth, and consumer banking sectors, particularly in Europe and Brazil. The bank's CET1 ratio, a key measure of financial stability, rose to 12.5%, and its return-on-tangible-equity ratio improved to 16.8% for the quarter.
New Home Sales and Prices: The US housing market showed signs of strain as new home sales fell to a seasonally adjusted annual rate of 617,000 in June, down 0.6% from May's revised rate. This was below the 640,000 units expected by economists. Despite the decline in sales, the median new home price increased to $417,300, the highest since March, while the average price fell to $487,200.
10-year Treasury Yield Dips: The yield on the 10-year US Treasury note ended the day at 4.288%, while the 2-year Treasury note yield was at 4.31%. This movement in yields indicates continued uncertainty about the future economic outlook and potential Federal Reserve actions.
US Crude Oil Rebounds: US crude oil futures bounced back, breaking a three-day losing streak. The West Texas Intermediate September contract rose 0.82% to $77.59 per barrel, while Brent crude increased by 0.86% to $81.71 per barrel. The rebound was driven by a decline in US crude stockpiles, a rise in gasoline demand, and concerns about supply disruptions due to wildfires in Canada.
FX Today:
GBP/USD Stuck in Range Amid Strong UK PMI Data: The GBP/USD pair remained largely stable around the 1.2900 mark, despite stronger-than-expected UK PMI data which failed to push the pair higher. The currency pair faced resistance at 1.2940, while repeated attempts to break below 1.2900 did not sustain. Key support levels are at 1.2860 and 1.2779, with the 100-day moving average at 1.2678 acting as a deeper support in case of a downturn.
AUD/USD Slides Below 0.6590 on China Concerns: The AUD/USD pair dropped below the 0.6590 level, influenced by negative sentiment surrounding China's economic outlook. The pair remains under pressure, trading below its 20 and 100-day Simple Moving Averages, indicating potential for further losses. The AUD/USD has found itself constrained between 0.6600 and 0.6580, with a significant sell-off risk if it breaches the 200-day SMA.
USD/JPY Declines Amid Policy Speculations: The USD/JPY pair fell to 153.84, down by 1.57%, as market participants speculated on potential shifts in US and Japanese monetary policies. The decline came as Japanese authorities intervened in the market, adding to the uncertainty. Key support levels are now at 153.12, 152.76, and 152.39, with resistance levels at 154.21 and 155.34, as traders assess the likelihood of further interventions and policy adjustments.
Gold Steadies Around $2,400 Amid Risk-Aversion and Rising Yields: Gold prices remained steady at around $2,400 per ounce, struggling to break above key resistance levels despite a risk-averse market environment and rising US Treasury yields. The metal hit a daily high of $2,432 but failed to maintain momentum. A sustained move above $2,430 could see the price test the next resistance at $2,450, with the all-time high of $2,483 in sight. Conversely, a drop below $2,384 could trigger a deeper correction towards $2,359 and potentially $2,315.
Market Movers:
Ford Motor Plummets on Disappointing Earnings: Ford Motor saw its shares drop 11% after reporting second-quarter adjusted earnings per share of 47 cents, significantly below the consensus estimate of 68 cents according to LSEG. The automaker's revenue reached $44.81 billion, slightly surpassing the expected $44.02 billion, but ongoing issues with warranties weighed heavily on investor sentiment.
Chipotle Mexican Grill Rises on Strong Q2 Results: Chipotle's stock climbed nearly 4% after the company reported strong second-quarter earnings and revenue, with adjusted earnings of 34 cents per share beating the expected 32 cents per share. The company also reported revenue of $2.97 billion, exceeding the $2.94 billion consensus. Increased traffic at Chipotle's restaurants and effective price increases contributed to the better-than-expected performance.
IBM Gains on Better-Than-Expected Earnings: International Business Machines (IBM) saw a 3% increase in its share price after posting adjusted earnings of $2.43 per share for the second quarter, above the $2.20 per share anticipated by LSEG analysts. The company's revenue also surpassed expectations, coming in at $15.77 billion versus the $15.62 billion forecast.
ServiceNow Jumps on Earnings Beat: ServiceNow's shares rose 6% following the release of its second-quarter earnings, which showed adjusted earnings of $3.13 per share, outpacing the $2.84 per share expected by LSEG.
Lamb Weston Plummets on Weak Q4 Earnings: Shares of Lamb Weston fell over 28% following disappointing fiscal fourth-quarter results. The company reported adjusted earnings of 78 cents per share, well below the FactSet consensus estimate of $1.26 per share, on revenue of $1.61 billion, which also missed expectations of $1.70 billion. Lamb Weston attributed the weak results to challenging market conditions.
Tesla Tumbles on Earnings Miss and Revenue Decline: Tesla's shares dropped more than 12% after the electric vehicle maker reported second-quarter earnings that fell short of expectations, despite revenue reaching $25.5 billion, above the $24.77 billion consensus. The company's 7% year-over-year decline in auto revenue further weighed on its stock, impacting related EV stocks like Rivian and Lucid, which also saw declines.
Alphabet Falls on Disappointing YouTube Revenue: Alphabet's shares dropped around 5% after the company reported second-quarter earnings, highlighting a miss in YouTube advertising revenue, which came in at $8.66 billion versus the $8.93 billion expected by StreetAccount. The underperformance in one of Alphabet's key revenue streams raised concerns among investors.
Visa Declines on Revenue Miss: Visa's shares fell 4% after the company reported fiscal third-quarter revenue of $8.9 billion, slightly below the $8.92 billion forecast by LSEG. Despite a 7% increase in payments volume, the revenue miss raised questions about the company's growth trajectory in the highly competitive financial services market.
AT&T Rises on Strong Subscriber Growth: AT&T shares gained over 5% after the telecommunications giant reported the addition of 419,000 wireless phone subscribers, exceeding analyst expectations. The company's earnings per share met LSEG forecasts, though revenue came in slightly below analyst projections, reflecting mixed reactions in the market.
The sharp declines in major indices highlight investor concerns over the sustainability of recent gains and the broader economic outlook. The significant losses in the S&P 500 and Nasdaq, driven by disappointing results from companies like Tesla and Alphabet, underscore the vulnerability of tech stocks amid high expectations. Despite these challenges, some sectors, such as healthcare and energy, showed resilience, suggesting potential areas for investment opportunities. As the earnings season progresses, market participants will closely watch upcoming reports and economic data to understand the trajectory of the recovery and adjust their strategies accordingly.
