NEW YORK (AP) — Technology stocks are slumping Wednesday as several of Wall Street’s most influential stocks feel the downside of ultrahigh expectations.
The S&P 500 was 1% lower and potentially heading for its worst day in six weeks. Its losses accelerated a bit in the afternoon after the Federal Reserve hinted that the cuts to interest rates investors desire so much may not arrive as soon as hoped.
The drops for Big Tech stocks sent the Nasdaq composite down a market-leading 1.5%, as of 2:20 p.m. Eastern time. The Dow Jones Industrial Average, which has less of an emphasis on tech, was down 69 points, or 0.2%.
Alphabet was one of the heaviest weights on the market, and it fell 6.6% 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 1.7% 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,” slipped 0.4%. 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 1.9% 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.
Elsewhere on Wall Street, 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%.
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 definitely 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 3.98% 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.
