(Bloomberg) — A renewed selloff in the world’s largest technology companies dragged down the stock market, overshadowing economic data that bolstered confidence the Federal Reserve will be able to engineer a soft landing.
About 300 companies in the S&P 500 advanced — but the index itself edged lower. While economically sensitive groups such as energy, industrial and financial shares gained, the benchmark’s most influential group — technology — came under renewed pressure. The cohort of megacaps that have led the bull market continued to largely underperform smaller firms — which have rallied almost 10% in July.
As the S&P 500 marched from one record to the next in the first half of the year, some investors grew concerned that only a handful of companies were participating in the rally. Corners of the market outside of big tech are now barreling higher amid confidence the Fed is taming inflation without breaking the economy — and will soon be able to cut interest rates.
“We’re in the midst of a great, rate-led rotation from tech to everything else,” said Callie Cox at Ritholtz Wealth Management. “Sure, it’s been painful, but it may be worth weathering this storm for what could come on the other side. Believe in this bull market, or risk getting left behind.”
Interestingly enough, equity traders also welcomed the fact that the latest economic figures bolstered market bets on a rate cut in September — and not earlier. Yes, policy easing usually bodes well for Corporate America, but a rush to slash borrowing costs could actually have an adverse impact on sentiment. It could signal officials worried about a bigger economic slowdown.
The S&P 500 closed below 5,400. The Russell 2000 of smaller companies climbed 1.3% and a measure of the “Magnificent Seven” megacaps fell 1.1%. Alphabet Inc. slumped as OpenAI is letting a limited group of users test a new set of search features. Tesla Inc. rose after a 12% plunge.
Treasury 10-year yields fell three basis points to 4.26%.
U.S. economic growth accelerated by more than forecast in the second quarter, illustrating demand is holding up under the weight of higher borrowing cots. Gross domestic product increased at a 2.8% annualized rate after rising 1.4% in the previous quarter. A closely watched measure of underlying inflation ose 2.9%, easing from the first quarter but still above estimates.
“Goldilocks is getting stronger and the risk of stagflation is fading,” said David Russell at TradeStation. “There’s not much ‘stag; and not much ‘flation’. This kind of GDP report is a potential tailwind for corporate earnings that keeps us on pace for lower rates going forward.”
To Chris Zaccarelli at Independent Advisor Alliance, the U.S. economy is much stronger than people realize and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief after the GDP number.
“As long as the economy avoids a recession, then this bull market will continue through 2024 and well into 2025, so we would take advantage of any pullbacks along the way,” he noted.
Thursday’s economic figures do “lend support to the soft-landing narrative” adding that the report “should provide some relief to stressed markets,” according to Matt Peron at Janus Henderson Investors.
“The catch-up trade in smaller stocks should still have room to run,” said Yung-Yu Ma at BMO Wealth Management. “Earnings growth among smaller companies is set to improve by year end, and the Fed will soon begin a year-long rate cutting campaign which will disproportionately benefit smaller companies.”
Corporate Highlights:
· Meta Platforms Inc. is facing its first European Union fine over allegations it abused its dominance in the classified ad market by tying Facebook Marketplace to its social network.
· EssilorLuxottica SA confirmed Meta Platforms Inc. is interested in buying a stake in the world’s biggest eyewear maker.
· American Airlines Group Inc. cut its earnings outlook as it works to bounce back from earlier blunders that will weigh on revenue and profits for the rest of 2024.
· New York Community Bancorp reported provisions for loan losses higher than every analyst’s estimate.
· Harley-Davidson Inc.’s second-quarter revenue exceeded analysts’ estimates on higher shipments and better sales of pricier motorcycles in North America. It also announced a US$1 billion share buyback.
· International Business Machines Corp. reported a jump in bookings for its artificial intelligence business as customers work to implement the latest technology.
· Ford Motor Co. tumbled after a big earnings miss that the automaker blamed on a surge in warranty repair costs for older vehicles.
· Lululemon Athletica Inc. sank as analysts raised fresh concerns about the company’s ability to hit financial targets due to ongoing product execution issues and slowing active wear trends.
Some of the main moves in markets:
Stocks
· The S&P 500 fell 0.5% as of 4 p.m. New York time
· The Nasdaq 100 fell 1.1%
· The Dow Jones Industrial Average rose 0.2%
· The MSCI World Index fell 0.8%
· Bloomberg Magnificent 7 Total Return Index fell 1.1%
· The Russell 2000 Index rose 1.3%
Currencies
· The Bloomberg Dollar Spot Index was little changed
· The euro was little changed at $1.0845
· The British pound fell 0.4% to $1.2851
· The Japanese yen was little changed at 153.83 per dollar
Cryptocurrencies
· Bitcoin fell 2.2% to $64,622.32
· Ether fell 8% to $3,106.9
Bonds
· The yield on 10-year Treasuries declined three basis points to 4.25%
· Germany’s 10-year yield declined three basis points to 2.42%
· Britain’s 10-year yield declined three basis points to 4.13%
Commodities
· West Texas Intermediate crude rose 0.7% to $78.14 a barrel
· Spot gold fell 1.5% to $2,361.64 an ounce
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