‘Mag Seven’ Get Crushed Before Next Week’s Results: Markets Wrap

(Bloomberg) -- A selloff in the world’s largest technology companies hit stocks, with Wall Street traders gearing up for a deluge of results from the industry that has powered the bull market.

Equities extended their slide from a record, with the S&P 500 breaking below 5,000 and the Nasdaq 100 falling over 2%. More than half of the “Magnificent Seven” cohort of tech megacaps will report earnings next week — leaving investors wondering whether those firms are going to live up to the high expectations set for artificial intelligence. Just Friday, a pair of AI darlings — Nvidia Corp. and Super Micro Computer Inc. — sank at least 10%.

Profits for the seven biggest growth companies in the S&P 500 — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia, Meta Platforms Inc. and Tesla Inc. — are on course to surge 38% in the first quarter, according to Bloomberg Intelligence. When excluding them, the rest of the benchmark index’s profits are anticipated to shrink by 3.9%.

“Investors are expecting not just strong results — but strong guidance,” said Quincy Krosby, chief global strategist at LPL Financial. “Any disappointment from the mega-tech names reporting could push this week’s oversold market deeper into oversold territory.”

The S&P 500 saw its sixth consecutive drop — the longest losing streak since October 2022. The plunge in Nvidia wiped out over $200 billion in value. The Nasdaq 100 had its worst day this year. Netflix Inc. tumbled, taking the shine off stellar financial results following management’s decision to stop reporting quarterly subscriber data.

Treasury 10-year yields declined one basis point to 4.62% — almost erasing an earlier plunge of 14 basis points. Oil eked out a meager gain after Iranian media appeared to downplay the effect of Israeli strikes. 

Tech came under heavy pressure this week after Taiwan Semiconductor Manufacturing Co. scaled back its outlook for a chip-market expansion and ASML Holding NV posted disappointing orders. Those developments raised concern on whether that would be a sign of what’s to come as other giants prepare to report earnings. Intel Corp.’s numbers are due next week.

Those jitters around the stock market’s most-influential group — alongside geopolitical risks, hot inflation data and a drumbeat of hawkish Fedspeak — have been rattling trading.

The S&P 500 saw its worst week since March 2023 — extending a drawdown from its all-time high to more than 5%. After the gauge’s strongest start to a year since 2019, investors have been increasingly skeptical about how much further the market could go over the near term, even accounting for the continued strength in the economy.

“Geopolitical and political uncertainty join inflation, rates, and the Fed in pressuring markets, driving a rapid and dramatic shift in the complexion of markets and the attitude of investors,” said Mark Hackett at Nationwide.

Investors are pulling money out of equities as a strong US economy and sticky inflation fuel concerns that the Fed will keep interest rates higher for longer, according to Bank of America Corp. strategists.

A team led by Michael Hartnett said good economic news is now bad news for stocks, a shift in mindset from the first quarter when “good news = good.” Evidence of this is the $21.1 billion investors redeemed from stock funds in the two weeks through Wednesday, the most in a fortnight since December 2022, BofA said, citing data from EPFR Global.

The US stock market’s retreat from all-time highs set late last month is giving investors parked in cash an opening to buy in, according to Sinead Colton Grant, chief investment officer of BNY Mellon’s wealth management arm.

The three-week slump in the S&P 500 is a healthy consolidation by traders after it soared 10% in the first quarter, on top of a 24% gain in 2023, she said. 

From here, Colton Grant expects the rally to not only resume but broaden based on strong earnings growth and continuing economic momentum, potentially pushing the S&P 500 beyond the higher end of her 5,000-5,400 target range before 2024 closes out.

Corporate Highlights:

• American Express Co. reported revenue that topped estimates in the first three months of the year as consumers continued to flock to the company’s premium credit-card offerings.
• Trump Media & Technology Group Corp. says an illegal form of short selling might be behind the battering of its stock and it’s asking regulators at Nasdaq Inc. to step in.
• Procter & Gamble Co., the maker of Pampers diapers and Dawn dish soap, reported quarterly sales that fell short of Wall Street estimates, overshadowing an improved profit outlook.
• SLB, the world’s biggest oilfield-services provider, disappointed investors by failing to translate a significant first-quarter jump in crude prices into richer shareholder returns.
• The US Federal Aviation Administration is investigating an incident where a passenger was apparently granted unauthorized access to the cockpit of a United Airlines Holdings Inc. charter flight traveling from Denver to Toronto.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.9% as of 4 p.m. New York time
• The Nasdaq 100 fell 2.1%
• The Dow Jones Industrial Average rose 0.6%
• The MSCI World index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1% to $1.0655
• The British pound fell 0.5% to $1.2373
• The Japanese yen was little changed at 154.61 per dollar

Cryptocurrencies

• Bitcoin rose 1.2% to $64,297.01
• Ether rose 1% to $3,101.31

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.62%
• Germany’s 10-year yield was little changed at 2.50%
• Britain’s 10-year yield declined four basis points to 4.23%

Commodities

• West Texas Intermediate crude rose 0.6% to $83.22 a barrel
• Spot gold rose 0.4% to $2,387.75 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Jessica Menton, Farah Elbahrawy, Alexandra Semenova and Esha Dey.

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