March 3rd, 2024

Stock market today: Slumping tech stocks and dashed hopes of quick rate cuts push Wall Street lower

By Stan Choe, The Associated Press on January 31, 2024.

FILE - A street sign is seen in front of the New York Stock Exchange in New York, Tuesday, June 14, 2022. Wall Street headed lower early Tuesday, Dec. 5, 2023, after Moody's Investor Service downgraded China's sovereign debt rating as the country's real estate crisis seeps into its local government and private financing. (AP Photo/Seth Wenig, File)

NEW YORK (AP) – Wall Street fell to its worst loss in since September after Big Tech stocks got burned by the downside of high expectations and the Federal Reserve indicated cuts to interest rates likely aren’t imminent. The S&P 500 lost 1.6% Wednesday. The Nasdaq composite fell 2.2%, and the Dow fell 0.8%. Alphabet was one of the market’s heaviest weights after analysts pointed to some concerning trends in how much it’s earning from advertising. Microsoft fell despite delivering stronger profit and revenue than expected. Fed Chair Jerome Powell said cuts to rates may be likely this year, but not as soon as traders hoped.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) – Technology stocks are slumping Wednesday as several of Wall Street’s most influential stocks feel the downside of ultrahigh expectations. The market’s losses accelerated after the Federal Reserve indicated the cuts to interest rates that investors crave so much likely won’t arrive in March, as many traders had hoped.

The S&P 500 was 1.3% lower in shaky afternoon trading and heading for its worst loss in six weeks. It veered between a loss of just 0.4% and 1.4% as traders revamped their bets for when the Fed would ease its main interest rate down from its highest level since 2001.

The Dow Jones Industrial Average was down 198 points, or 0.5%, as of 3:06 p.m. Eastern time, while the Nasdaq composite was 1.9% lower.

Alphabet was one of the heaviest weights on the market, and it fell 7% despite reporting stronger profit and revenue for the latest quarter than analysts expected. Underneath the surface, analysts pointed to some concerning trends in how much Google’s parent company is earning from advertising.

The bigger challenge, though, may have been the high expectations the company is contending with after its stock soared last year by much more than the rest of the market. Other Big Tech stocks that likewise accounted for a disproportionate chunk of the S&P 500’s rally to a record were also struggling Wednesday in the face of high expectations.

Microsoft was down 1.9% even though it delivered stronger profit and revenue than expected. One analyst, Dan Ives of Wedbush Securities, even called its quarterly report “a masterpiece that should be hung in the Louvre.”

Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” fell 1.4%. A judge in Delaware ruled a day earlier that its CEO, Elon Musk, is not entitled to the landmark compensation package awarded him by Tesla that’s potentially worth more than $55 billion.

The Magnificent Seven were responsible for the majority of the S&P 500’s return last year, and three more members are scheduled to report their latest quarter results on Thursday: Amazon, Apple and Meta Platforms. Expectations are high for them, too.

Advanced Micro Devices is not a member of the Magnificent Seven, but it benefits from many of the same trends. It fell 2.3% even though it matched analysts’ expectations for profit in the latest quarter and edged past them for revenue. Its forecast for revenue in the upcoming quarter fell short of analysts’ estimates.

Earlier in the day, stocks were getting some lift from easing yields in the bond market.

Lower yields can mean less pressure on the economy and financial system, while also encouraging investors to pay higher prices for stocks. They’ve been generally dropping since autumn on expectations that a cooldown in inflation will push the Federal Reserve to cut interest rates several times this year.

The Fed on Wednesday left its main interest rate steady at its highest level since 2001. Perhaps disappointingly for investors, it also made clear that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward” its goal of 2%.

“We’re not declaring victory at all,” Fed Chair Jerome Powell said. He said it’s unlikely Fed officials will get to that level of comfort by their next meeting in March. “It’s probably not the most likely case,” he said.

But Powell also said officials at the central bank already have some confidence that day will arrive. They just need to see continued data confirming that inflation is heading sustainably lower. “We have confidence,” he said. “It has been increasing, but we want to get greater confidence.”

Powell acknowledged the difficult position the Fed is in, with dangers arising from both acting too quickly and too late, even though “overall it’s a good picture” for the economy at the moment. Cutting rates too soon could reignite inflationary pressures, while acting too late would mean unnecessary pain for the economy and job market.

Treasury yields in the bond market erased some of their losses from earlier in the day after the Fed made that statement, which forced traders to push out some bets that the Fed could begin cutting rates as soon as March.

“Given how strong the economy has been, the Fed probably figures it can err on the side of cutting later and slower than what the market is pricing,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Come March the Fed might want to tee up a cut.”

The Fed made clear that it will watch incoming data reports to ensure inflation is sustainably moving down toward its goal. It may have found a couple reports from earlier Wednesday encouraging.

One report said that growth in pay and benefits for U.S. workers was slower in the final three months of 2023 than economists expected. While all workers would like bigger raises, the cooler-than-expected data could help calm one of the Fed’s big fears: that too-big pay gains would trigger a vicious cycle that ends up keeping inflation high.

A separate report from the ADP Research Institute also suggested hiring by non-government employers was softer in January than economists expected. The Fed and Wall Street are hoping that the job market cools by just the right amount, enough to keep a lid on inflation but not so much that it causes a recession

The yield on the 10-year Treasury fell to 4.00% from 4.04% late Tuesday.

In stock markets abroad, indexes slumped sharply again in China amid continued worries about a weak economic recovery and troubles for the country’s heavily indebted property developers.

Stocks were mixed elsewhere in Asia and in Europe.

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AP Writer Zimo Zhong contributed.

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