Stock Market

Tech Sector Tremors: Wall Street Braces for Earnings Amidst Tech Giant Sell-Off

Wall Street is in the throes of a significant sell-off, with the spotlight thrown on the behemoth technology companies as they prepare to release their earnings reports. This moment is pivotal as these companies have been the pillars of the bull market, and now, anxiety simmers over whether they can uphold their sky-high expectations, especially around artificial intelligence advancements.

The S&P 500 has slipped back from its zenith, puncturing the 5,000 mark, while the Nasdaq 100 took a steeper 2 percent dive. The limelight falls on more than half of the "Magnificent Seven" technology titans—Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia, Meta Platforms Inc., and Tesla Inc.—as they gear up to publicize their financial outcomes next week. Their announcements are eagerly anticipated, casting a shadow of suspense over Wall Street. Nvidia Corp. and Super Micro Computer Inc., two companies highly regarded for their AI capabilities, suffered a notable hit, each plummeting at least 10 percent.

According to projections by Bloomberg Intelligence, there is an expected surge of 38 percent in the profits for these seven giants of growth within the S&P 500 during this year's first quarter. Should we extract these tech behemoths from the equation, however, the expected profit margins for the remaining companies within the index show an anticipated decline of 3.9 percent.

Quincy Krosby, the chief global strategist at LPL Financial, underscores that investors are anticipation not simply stellar results but also vigorous future outlooks. The anxiety hovers that any shortfall in the results or predictions from these mammoth tech enterprises could exacerbate the current market, which some perceive as oversold, sending it tumbling further into that territory.

Marking its sixth back-to-back decline—a trend not seen since October 2022—the S&P 500 is undeniably on a downward slope. This downturn vaporized more than US$200 billion from Nvidia's valuation. Meanwhile, Netflix Inc.'s shares faltered, overshadowing remarkable financial performances, triggered by the company's decision to cease the dissemination of quarterly subscriber numbers.

The financial world saw the 10-year Treasury yields dip to 4.62 percent, narrowly averting a harsher drop. In the commodities sector, oil prices managed to pare back a significant gain, concluding at a modest elevation, following reports from Iranian media suggesting that the impact of Israeli airstrikes might not be as severe as initially feared.

Sentiment in the tech sector was heavily affected this week when Taiwan Semiconductor Manufacturing Co. took a conservative turn on its chip market growth outlook. This conservative forecast was echoed by ASML Holding NV’s disappointing order figures. This news has led to speculation and concern over whether such announcements hint at broader trends in the industry as other tech giants approach their earnings reports. Investors will also be awaiting the numbers from Intel Corp., adding to the sense of anticipation.

The S&P 500 experienced its bleakest week since March 2023, distancing itself from its peak by over 5 percent. After steering through a remarkable 10 percent uptick in the first quarter—its most forceful outset since 2019—the investors are now expressing skepticism over the market's capacity for continued growth in the short term, pondering the strength of the economy despite its momentum.

A persistent cadence of hawkish remarks from the Federal Reserve and mounting inflation apprehensions have taken their toll on market sentiment. Even as tensions in the Middle East appear contained for the moment, traders are adopting a stance of caution.

Fawad Razaqzada of City Index and Forex.com cautions that no assumption can be deemed safe when it comes to the markets, as they may stay on a knife-edge, particularly considering the risk associated with the forthcoming weekend. Inflation continues to be central in discussions, rooted in its potential to shape the trajectory of monetary policy.

According to Mark Hackett of Nationwide, markets are at the mercy of a blend of concerns, including inflation, interest rates, federal decisions, geopolitical, and political uncertainty. This amalgam is prompting a swift and pronounced alteration in the complexion of markets and the temperament of investors.

Amid these turbulent times, one phenomenon has been observed by strategists at Bank of America Corp.—investors have started to retract from equities. This exodus is primarily driven by the robust U.S. economy concurrent with persistent inflation, fueling the theorization that the Federal Reserve may sustain elevated interest rates for an extended period. Michael Hartnett and his team, in a note, asserted that the previous sentiment where ‘good news equated to good outcomes for stocks’ has pivoted, hinting at the stark withdrawal of $21.1 billion from stock funds within the span of two weeks, tapering off Wednesday—the heftiest in a fortnight since December 2022, as per figures from EPFR Global.

Contrasting this trend, Sinead Colton Grant of BNY Mellon suggests the stock market's retreat could be a vital window for investors who have been waiting on the sidelines with cash reserves. She interprets the three-week downtrend in the S&P 500 as a "healthy consolidation" following its ascension during the first quarter and an impressive 24 percent growth in 2023. She remains optimistic that not only will the market rally persist but also spread even wider—propelled by robust earnings growth and enduring economic impetus—potentially catapulting the S&P 500 beyond her projected target range of 5,000 to 5,400 before the end of 2024.

Corporate Undercurrents: Spotlight on Industry Shakers

Trump Media & Technology Group Corp. has raised concerns about potentially illicit short-selling activities plaguing its stock value and has called upon Nasdaq Inc. regulators to intervene.

Amongst other significant corporate disclosures, Procter & Gamble Co. released sales figures that fell shy of Wall Street's predictions, although it paired this news with an upgraded profit forecast. In the energy sector, SLB—the largest provider of oilfield services globally—anticipates an upswing in activities across the Northern Hemisphere as the second quarter comes into full swing. Super Micro Computer Inc.'s shares took a hit after the company merely announced the date of its third-quarter results without providing a preliminary announcement.

In the aviation domain, the U.S. Federal Aviation Administration is investigating an alarming incident where an individual reportedly gained unauthorized access to the cockpit of a United Airlines Holdings Inc. charter flight en route from Denver to Toronto. Retail news sees the founding family of Nordstrom Inc. expressing an intention to privatize the company.

Notably, Mondi Plc has chosen to step back from a potential takeover battle for UK packaging firm DS Smith Plc, thereby steering clear of a contest with U.S. suitor International Paper Co.

Market Movements: An Overview

Stocks: The S&P 500 witnessed a 0.9 percent decline, while the Nasdaq 100 fell more robustly by 2.1 percent. On the other hand, the Dow Jones Industrial Average experienced a lift of 0.6 percent. The MSCI World index also saw a drop, edging down by 0.8 percent.

Currencies: The Bloomberg Dollar Spot Index remained largely unchanged. There was a slight 0.1 percent rise in the euro, bringing it to $1.0655. The British pound depreciated by 0.5 percent to $1.2373, and the Japanese yen was almost constant at 154.61 per dollar.

Cryptocurrencies: Cryptocurrency markets showed some resilience with Bitcoin climbing 1.2 percent to attain a value of $64,297.01. Ether also experienced an uptick of 1 percent, valued at $3,101.31.

Bonds: The yield curve for 10-year Treasuries saw a minor descent by one basis point, fixing at 4.62 percent. Across the Atlantic, Germany’s 10-year yield remained stable, and Britain's 10-year yield reduced by four basis points to 4.23 percent.

Commodities: In the commodities market, West Texas Intermediate crude oil experienced an elevation of 0.6 percent, reaching a price tag of $83.22 a barrel. Spot gold also witnessed growth, increasing by 0.4 percent to $2,387.75 an ounce.

The unfolding saga of corporate ups and downs, alongside volatile movements across markets, underlines the complex nature of today's economic landscape. The forthcoming week promises to reveal more, as heavyweight tech companies release their earnings, which could further shape investor sentiment and impact market trajectories. As always, for those interested in diving deeper into the specifics, sources such as Bloomberg Intelligence offer valuable insights.

For more detailed analytics and updates, please visit Bloomberg Intelligence.