Tech, bonds falter after earnings miss, jobs data
U.S. equities and Treasuries fell Thursday as investors digested a round of disappointing tech earnings and fresh signs of labor-market resiliency that could support another hike in interest rates this year.
The tech-heavy Nasdaq 100 fell 2.3%, with Netflix notching its biggest decline of the year after a disappointing revenue forecast. Tesla slid after profitability shrank in the second quarter. And the yield on 10-year Treasuries rose 10 basis points as an unexpected drop in weekly initial jobless claims prompted traders to price in higher odds of a quarter-point rate hike beyond the Federal Reserve’s meeting next week.
The losses are hitting the pause button on this year’s blistering stock rally that’s seen the S&P 500 rise 18%, and the Nasdaq 100 gain 41%, against a shaky economic outlook during the Fed’s aggressive tightening campaign.
“In the last 24 hours alone there has been talk of a worsening of the conflict in Ukraine, a further slowdown in China and major U.S. banks facing significant real estate losses,” Lewis Grant, senior portfolio manager at Federated Hermes, wrote in a note. “Each of these threats, along with uncountable unknowns, has the potential to halt the sentiment rebound in its tracks.”
On Wednesday, wheat prices had surged following an escalation of tensions between Russia and Ukraine in the Black Sea. Goldman Sachs had reported a plunge in profits. And early Thursday, China had stepped up its support for the yuan amid a ramp up in rhetoric to bolster business confidence.
Against such a backdrop, returns on the back of a handful of tech stocks are “overdone” and may be the precursor to a downturn, Aegon Asset Management strategist Cameron McCrimmon warned.
“The breadth of returns on the S&P 500 has become increasingly narrow, driven by a few megacap tech stocks on AI optimism, which is a classic sign of an aging bull,” McCrimmon wrote in a note.
The sentiment was echoed by Louise Goudy Willmering, a partner at Crewe Advisors.
“To be just driven simply by a few names in technology is not great,” Goudy Willmering said by phone. “Earnings will definitely determine where we go from here as we look into the third and fourth quarters.”
In Europe, tech stocks including ASML slumped after Taiwan Semiconductor Manufacturing cut its outlook despite the boom in AI development. Meanwhile, equities in Asia including Japan, Hong Kong and mainland China fell.
Elsewhere, the dollar reversed losses to trade stronger against major peers. Gold declined and the price of oil wavered.