Tech Stocks Tumble: Microsoft, Nvidia, and Megacaps Drag Markets Down - Here’s How It Affects You
By Chuck Mikolajczak
NEW YORK (Multibagger) - In a volatile trading session on Tuesday, the S&P 500 and Nasdaq indexes stumbled due to declining chip and megacap shares, overshadowing modest gains in the Dow Jones Industrial Average.
Microsoft (NASDAQ: MSFT), often viewed as the frontrunner in the artificial intelligence race, saw its stock plummet nearly 2% ahead of its eagerly anticipated quarterly earnings report. Similarly, Nvidia (NASDAQ: NVDA), a key player expected to benefit significantly from AI advancements and the second-best performer in the S&P 500 this year, nosedived over 6%. This dragged down other chip stocks and caused the Philadelphia semiconductor index to fall by more than 3%.
Other tech giants such as Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META) also saw declines amid growing concerns about their potentially overvalued stock prices.
Stephen Massocca, Senior Vice President at Wedbush Securities, remarked, "Many investors are excited about artificial intelligence but are questioning how to monetize this trend. Financially, these companies might be doing well, but the high valuations require cautious investment."
Here's a snapshot of market activity:
- Dow Jones Industrial Average: Up 148.19 points, or 0.37%, to 40,687.35
- S&P 500: Down 29.82 points, or 0.55%, to 5,433.72
- Nasdaq Composite: Down 209.99 points, or 1.21%, to 17,160.21
Meanwhile, small-cap and value stocks, particularly within the financial sector, outperformed the broader market. This reflects a continued rotation away from more expensive stocks, as investors solidify expectations of a Federal Reserve rate cut later this year due to signs of moderating inflation.
The S&P 500 financials index surged 1.3%, leading gains among the 11 major S&P sectors, while the technology sector, down 1.7%, was the worst performer. This decline in megacap stocks was exacerbated by Tesla's (NASDAQ: TSLA) disappointing results and Alphabet's (NASDAQ: GOOGL) forecast of higher expenditures, which had already triggered a widespread market sell-off last week.
Market participants are now betting on a slight chance that the Federal Reserve will cut rates by at least 25 basis points at the end of its policymaking meeting on Wednesday. However, a rate cut is fully expected for the U.S. central bank's September meeting, according to CME's FedWatch Tool.
Adding to the week's economic data, the Job Openings and Labor Turnover Survey on Tuesday revealed 8.18 million job openings in June, exceeding economists' expectations of 8 million.
In individual stock news:
- Procter & Gamble (NYSE: PG): Fell nearly 6% after missing fourth-quarter sales expectations.
- Merck (NYSE: MRK): Dropped more than 9% after cutting its annual profit forecast.
- CrowdStrike (NASDAQ: CRWD): Tumbled nearly 11% due to a report that Delta Air Lines (NYSE: DAL) sought compensation from the cybersecurity firm and Microsoft for a global cyber outage earlier this month.
- F5 Networks (NASDAQ: FFIV): Surged nearly 14% after forecasting fourth-quarter results above estimates.
Advancing issues outnumbered decliners by a ratio of 1.2-to-1 on the NYSE and 1.35-to-1 on the Nasdaq. The S&P 500 recorded 65 new 52-week highs and one new low, while the Nasdaq Composite saw 114 new highs and 113 new lows.
Breakdown and Analysis
What This Means for You and Your Finances
Tech Stocks Are Volatile: The significant drops in tech giants like Microsoft, Nvidia, and others indicate that these stocks might be overvalued. If you hold these stocks, be prepared for potential volatility and consider diversifying your portfolio.
Federal Reserve Rate Cuts: The market is heavily betting on a rate cut by the Federal Reserve. This could lower borrowing costs for businesses and consumers, potentially boosting economic activity but also signaling caution about the economy’s health.
Economic Indicators: The higher-than-expected job openings suggest a strong labor market, which is a positive sign for the economy. However, keep an eye on upcoming labor data and Friday’s government payrolls report for a more comprehensive picture.
Individual Stock Movements: Companies missing earnings expectations or altering profit forecasts can lead to significant stock price fluctuations. Stay informed about the stocks in your portfolio and consider how broader market trends might impact individual holdings.
By understanding these market dynamics, you can make more informed decisions about your investments and manage your financial future more effectively.