On Thursday (July 25th), due to concerns that AI trading may lose momentum, the Nasdaq and S&P 500 indices joined the latest round of large-scale technology stock sell-offs on Wall Street. The US stock market attempted to rebound on Thursday, but failed.
The S&P 500 index fell 27.91 points to 5,399.22; The Dow Jones industrial average rose 81.20 points to 39,935.07; The Nasdaq composite index fell 160.69 points to 17,181.72.
(Source: FX168)
(Source: FX168)
No faith in AI.
Nvidia and most large technology stocks continued to decline, bringing pressure to Wall Street, but these stocks were also the primary factor in the S&P 500 index hitting new highs this year.
After disappointing profit reports from Tesla and Alphabet, concerns about the overheating of AI have arisen in the market.
At the same time, as major companies' profits fall short of expectations, doubts arise about whether American consumers can sustain themselves against historically high borrowing costs, and concerns about the strength of the US economy are beginning to emerge.
"Wall Street is undergoing a change. Once leading AI stocks are now falling behind. These trends are not uncommon during a 'big rotation' in a bull market," said Adam Sarhan, CEO of 50 Park Investments.
"It seems that people have widely reassessed the costs and benefits of AI. Concerns about consumer demand continue to exist due to signs of weak US data," said Homin Lee, Senior Macro Strategist at Lombard Odier Singapore Ltd.
Economic data.
Estimated GDP data for the second quarter showed a quarter-on-quarter growth of 2.8% for the US economy, well above the Bloomberg expected economist estimate of 2% and the Dow Jones expected economist estimate of 2.1%.
At the same time, the July Markit Manufacturing PMI for the US fell, hitting a seven-month low.
Inflation data
The inflation indicator that the Federal Reserve will release on Friday may have an impact on the market. The July update to the personal consumption expenditure price index will provide another data point for the Fed to consider when it comes to the timing of interest rate cuts.
"It is difficult to find data or indicators that suggest inflation is still a major issue," said Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management.
Because inflation has essentially slowed down, the general expectation is that the Federal Reserve will begin to lower the main interest rate from its highest level in more than 20 years.
According to data from the CME Group, traders still believe that there is a 100% chance that the Federal Reserve will begin to lower interest rates in September.
Lowering interest rates will release the accumulated pressure on the economy and financial markets. Investors believe that it will provide a particularly significant boost to small and other industries under pressure because their profits are more closely related to economic strength than the profits of large technology companies.
The Russell 2000 small-cap index rose 1.3%, outperforming other market indices. The index rose 8.6% this month, while the S&P 500 large-cap index fell 1.1%.
Bond market
The yield on 10-year US Treasuries fell sharply from Wednesday evening's 4.28% to 4.24%, a significant boost to stock prices.
Focus stocks
IBM rose 4.33%, one of the biggest drivers behind the Dow Jones Industrial Average's gains, and the company's profits and revenues exceeded expectations in the last quarter. The company also raised its cash flow forecast for the year, citing strong performance in its AI business.
ServiceNow rose 13.4%, achieving its best single-day performance since 2019. The company was the strongest force behind the rise in the S&P 500 index. The company's platform helps connect seemingly disconnected systems for enterprises, and its profits and revenues exceeded expectations. The company also raised its subscription revenue forecast for the year.
American Airlines rose 4.23% and Southwest Airlines rose 5.52%. The aviation stocks saw a rise after American Airlines Group and Southwest Airlines both reported spring profits beating analysts' expectations. Southwest Airlines also announced the end of a 50-year tradition: it will begin to assign seats to passengers who need more legroom and sell premium seats.
Ford Motor fell 18.36%, the largest single-day drop since 2008. The company's second-quarter earnings were far below analysts' expectations. The decline in net income is partly due to increased warranty and recall costs.
Edwards Lifesciences fell 31.34% and had its worst day since 2000 after sharply lowering its forecast for transcatheter aortic valve replacement.