Key points:

  • The S&P 500 and Nasdaq indices ended trading at multi-week lows.
  • Negative financial results from Alphabet and Tesla caused a general decline in the markets.
  • The information technology and non-essential consumer goods sectors were the most vulnerable.

The S&P 500 and Nasdaq indices ended Wednesday at multi-week lows. The S&P 500 index broke a streak of days without significant drawdowns exceeding 2%. The published financial results of Alphabet and Tesla, which didn’t meet investor expectations, had a negative impact on the market and undermined confidence in large companies.

The influence of the Magnificent Seven companies

The release of quarterly results from the first of the Magnificent Seven companies acted as a catalyst for investors awaiting confirmation of the high valuations assigned to these companies. Given the significant influence of these seven corporations on the markets, the results of their activities couldn’t remain without serious consequences.

Investor reaction to the data resulted in the S&P 500 index posting its worst one-day performance since December 2022, losing 2.3%. The event broke a streak of 356 trading sessions in which the index didn’t close down more than 2%, the longest streak since 2007.

The Nasdaq Composite Index also came under pressure, posting its biggest one-day percentage decline since October 2022 and finishing at its lowest level since June 10. The Dow Jones Industrial Average fell below 40,000 for the first time in two weeks.

Tesla shares came under significant pressure, losing 12.3% of their value on the day, their worst performance since September 2020. The sharp decline came as financial results were released, which showed the weakest profitability in more than five years and missed earnings forecasts for the second quarter.

Shares of Google parent Alphabet also fell 5%, their worst performance since May 31, despite rising second-quarter profit. Investors took note of the slowdown in advertising growth and the company’s significant capital expenditures.

The information technology sector was the most vulnerable

The reported financial results of Tesla and Alphabet had a significant negative impact on the information technology and consumer discretionary sectors of the S&P 500 index. These sectors showed declines of 3.8% and 3.9%, respectively, with the latter showing the worst performance in a single day since September 2022.

The information technology sector was the most vulnerable among all 11 sectors in the index, losing 4.1% on the day, its biggest drop since October 2022. Alphabet’s losses underscored the high bar of expectations set for the so-called Magnificent Seven, a group of major technology companies that have posted double-digit and even triple-digit growth in 2024 thanks to bullish forecasts for the adoption of artificial intelligence.

However, any doubts about the stock’s ability to meet these high expectations could trigger heavy selling. Shares of other companies in this group, including Apple, Microsoft, Amazon.com, Meta Platforms and Nvidia, also ended trading with significant losses ranging from 2.9% to 6.8%.

The Dow Jones index, which includes shares of large American companies, also did not escape negative dynamics. One of the factors that put pressure on this index was the decline in the value of Visa shares by 4% after the publication of third-quarter results that didn’t meet investors’ expectations.

As a result, the S&P 500 lost 128.61 points, or 2.31%, to close at 5,427.13. The Nasdaq fell 654.94 points, or 3.64%, to 17,342.41. The Dow Jones Industrial Average fell 504.22 points, or 1.25%, to 39,853.87.