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Stocks keep going up, until they don’t. The Nasdaq (Compound: Indian) suffered its worst day of 2024 on Wednesday, with the technology-based index falling. Slippage more than 3% For the first time in over 400 trading days. That has wiped hundreds of billions of dollars in market value from the seven largest companies as growing concerns about Big Tech earnings have pushed the broader market to record highs. rotation Concerns about inflation have also made their way into investment sentiment in recent weeks, while other concerns center around the broader economy.
Overview: The most immediate catalyst for the selloff was a muted earnings report from Alphabet (GOOG) (GOOGL) (GOOGL) and a disappointing earnings call from tech darling Tesla (TSLA). Fearful investors have been changing their tune on the promise of AI — for now — as Google has yet to report any breakthrough earnings from its new product lineup and Elon Musk continues to push his vision of a robotaxi on the road. AI trading has helped fuel the rally since late 2022, but investors are increasingly demanding that the massive investments in the technology will yield a return, or at least something tangible will be seen nearly two years after ChatGPT’s release.
Technology isn’t the only sector suffering from a confidence crisis as earnings season begins (see electric vehicles and commercial real estate). At the macro level, wage growth and the labor market are slowing, with the unemployment rate recently hitting 4.1% from 3.4% a year ago. U.S. GDP growth data is due later Thursday, while the Federal Reserve’s preferred inflation gauge is due out Friday, providing further clues about the future of monetary policy and the interest rate environment (the FOMC meeting is next week).
In the comment: “Is this just a random dip, or the beginning of a deeper correction? For most investors, it doesn’t really matter, as long as the bull market eventually resumes,” writes analyst Damir Tokik. “Technically, the S&P 500 is in a slight downtrend. What happens next depends on fundamentals. Alphabet’s earnings don’t give us evidence of a bubble burst yet. We’ll have to wait for Nvidia’s (NVDA) earnings in late August to get confirmation of whether we’re in the process of bursting the Gen AI bubble. Additionally, economic data will be important. If the contractionary trend continues, while the labor market doesn’t weaken further, the Fed could cut in September and that could provide some support for value stocks.”