Tech Heavy Nasdaq Dropped 2%, 9-day Rally In Dow Jones Index

Barry Adams
20 Jul, 2023
New York City

After weeks of optimism, tech stocks faced a wall of reality as investors debated tech earnings, rate path and odds of a recession. 

The Nasdaq index turned lower after Tesla and Netflix worries weighed on market sentiment. 

Tesla reported record sales and earnings but operating margin dropped to the lowest in five quarters. Moreover, executives also highlighted the likely decline of vehicle sales in the current quarter because of factory maintenance. 

But market participants interpreted the step as a way for the electric vehicle maker to focus on factory retooling at the time of weak sales environment in the U.S., China and in Europe.  

The yields of 2-year, 10-year and 30-year Treasury securities rose on the worries of the reigniting of food inflation after Russia canceled Black Sea deal yesterday.

Wheat price advanced for the third day in a row and jumped to $7.30 a bushel, following a9% jump in yesterday's session, the largest single-day gain since 2012. 

Initial jobless claims declined 9,000 to 228,000 in the last week, the lowest level in two months, the Department of Labor reported Thursday. 

The unexpected decline in weekly claims highlighted ongoing tough labor market conditions in several sectors including leisure and entertainment, food services and warehouse and transportation. 

The four-week moving averages eased to 237,500, the lowest level in six weeks, indicating a tight labor market. 

Existing home sales declined 3.3% to a seasonally adjusted annual rate of 4.16 million, the lowest level in five months, the National Association of Realtors reported Thursday.  

There were just 1.08 million homes available for sale at the end of June, about three months of supply, far less than six months supply needed for the normal market functioning. 

Despite the fall in sales, median home price edged slightly lower to 410,200 from 414,000 a year ago. 

Home sales have been on the skids not for the lack of demand but for the tight supply. 

"There are simply not enough homes for sale. The market can easily absorb a doubling of inventory", said NAR Chief Economist Lawrence Yun.

Home sales in June dropped to the slowest pace since 2009 and dropped 18.9% from a year ago. 

 

U.S. Indexes & Yields 

The S&P 500 index traded lower 0.02% to 4,563.17 and the Nasdaq Composite futures edged down 2.0% to 14,063.36. 

The Dow Jones extended its rally to the ninth day in a row by 0.5% to 35,225.18, the longest since 2017 after Johnson & Johnson reported better-than-expected earnings and lifted its annual estimate. 

The yield on 2-year Treasury notes decreased to 4.82%, 10-year Treasury notes inched lower to 3.82% and 30-year Treasury bonds edged down to 3.91%. 

Crude oil increased $0.82 to $76.17 a barrel and natural gas prices increased 12 cents to $2.73 a thermal unit. 

 

Stock Movers 

Tesla Inc declined 5.7% to $274.92 after the electric vehicle maker reported quarterly results and executives indicated lower sales volume in the current quarter because of plant maintenance. 

Total revenue jumped 47% to $24.9 billion from $16.9 billion and net income attributable to common stockholders increased 20% to $2.7 billion from $2.3 billion and diluted earnings per share rose 91 cents from 76 cents a year ago. 

Quarterly revenue and earnings were ahead of market expectations and operating margin fell to a low of at least five quarters to 9.6% from the high of 17.2% in third quarter of 2022 on higher discounting.  

Free cash flow jumped 62% to $1.0 billion from $621 million a year ago. 

Las Vegas Sands Corp dropped 3% to $57.85 after the casino and resort company reported mixed quarterly results. 

Revenue in the quarter soared to $2.5 billion from $1.0 billion and net income swung to a profit of $368 million from a loss of $414 million and diluted earnings per share increased to 41 cents from (38) cents. 

The company reinstated its quarterly cash dividend of 20 cents a share. 

Netflix Inc declined 8.3% to $437.95 after the video content streaming company reported weak revenue growth in the second quarter.  

Revenue rose 2.7% to $8.2 billion from $7.9 billion and net income was nearly unchanged at $1.49 billion and diluted earnings per share rose to $3.29 from $3.20 a year ago. 

Free cash flow jumped to $1.3 billion from $13 million and global streaming paid members increased 8% to 238.39 million from 220. 67 a year ago. 

 

European Markets Rebounded

Market averages in Europe attempted a rebound and investors reviewed another batch of fresh earnings. 

European government bond yields edged higher and the yield on Italian bonds jumped above 4% and stayed below the UK gilts. 

Investors are anticipating the European Central Bank to raise hike rates at its next policy meeting but the rates are still not restrictive. 

Investors are also worried that the uneven economic recovery in China could dampen demand for industrial and luxury goods from the region but the demand in the U.S. could hold if the Federal Reserve manages to avoid dipping the economy into a recession. 

Closer to home, German's producer price inflation slowed in June to 0.1% from 1% annual pace in May, the Federal Statistics Office or DeStatis reported Thursday.   

Producer prices fell 0.3% on a monthly basis in June after falling 1.4% in May, largely driven by a sharp fall in prices of energy by 5% and electricity by 12.4%. 

 

Europe Indexes & Yields

The DAX index increased 0.6% to 16,204.22, the CAC-40 index advanced 0.8% to 7,384.91 and the FTSE 100 index increased 0.8% to 7,646.05. 

The yield on 10-year German bonds increased higher to 2.41%, French bonds traded lower to 2.97%, the UK gilts edged up to 4.21% and Italian bonds increased to 4.09%.

The euro edged higher to $1.19, the British pound to $1.28 and the U.S. dollar fetched 85.88 Swiss cents

Brent crude increased $0.30 to $79.79 a barrel and the Dutch TTF natural gas increased €1.06 to €28.02 per MWh.

 

Europe Stock Movers

ABB Ltd gained 2.9% to CHF 34.42 after the Swiss engineering company reported a rise in earnings on strong revenue growth. 

Revenue in the second quarter rose 13% to $8.1 billion from $7.2 billion and  earnings soared 139% to $906 million from $379 million and basic earnings per share jumped to 49 cents from 20 cents a year ago.  

New orders in the quarter declined to $8.67 billion from $8.81 billion with 5% increase in the Americas and mid-single digit increase in the U.S.

ASML Holding NV declined 4% to €626.10 and extended two day losses to 7% despite the Netherlands-based semiconductor equipment maker reported higher revenue and earnings and said demand from China remained strong. 

Electrolux AB plunged 20.5% to kr122.0 after the Swedish appliance maker reported sales declined 8% in its latest quarter. 

Revenue in the quarter declined 8.4% to SEK 32.6 billion and the company swung to a loss of SEK 648 million from a profit of SEK 257 million and diluted earnings per share was (SEK 2.43) from a profit of SEK 0.93. 

Sales were impacted by weaker demand and customers opting for cheaper priced products.