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Stock market has worst day since 2022, Tesla and Alphabet, Google's parent company, collapse
U.S. stocks suffered their worst day since 2022 on Wednesday, amid a broad selloff in technology companies as Wall Street traders sought to reduce exposure to companies that have made big bets on artificial intelligence.
The tech-heavy Nasdaq index closed down 3.6%, while the broader S&P 500 index lost 2.3%, both of their worst performances in more than 18 months. The Dow Jones Industrial Average fell 1.25%.
The rout was led by Tesla, whose shares fell 12.3% for their worst day since 2020, and Google parent company Alphabet, which fell more than 5% for its worst day since January.
Tesla announced Tuesday afternoon that its automotive revenue fell 7% from the previous quarter, and CEO Elon Musk said in a follow-up earnings call that the company's planned robotaxi rollout would be pushed back.
Although Alphabet announced its results on Tuesday which were in line with analysts' expectationsTraders appeared to be inspired by remarks made by CEO Sundar Pichai on the company's earnings call, which indicated that the tech world's booming investment in artificial intelligence was not going to pay off in the near term.
“I think we’re in that phase where we need to work deep and make sure we have those use cases [for AI products]“With these workflows, we’re making deep progress in creating value, which I’m very optimistic about,” Pichai said. “But these things take time.”
Steve Sosnick, chief strategist at Interactive Brokers, said Wall Street took that as a signal to sell stocks that had benefited from the frenzied growth that technology stocks have experienced in recent months.
“We’re seeing nervous profit-taking in some stocks that have been leveraged by AI and that many investors now rely on as a consistent source of stock market gains,” Sosnick told NBC News.
Alphabet also reported weaker-than-expected ad revenue from YouTube, which Google has owned since 2006.
Other big tech names posting big losses Wednesday included Nvidia, the computer chipmaker behind much of the AI revolution, whose shares fell more than 6% for their worst day since 2022; Facebook parent Meta fell 5%; Microsoft fell 3.5%; and Amazon lost 3%.
The major indices have been relatively consistent and positive. Even after Wednesday's decline, the S&P 500 is still up 13.8% in 2024, the Nasdaq 15.5% and the Dow Jones 5.7% over the same period.
Wednesday’s drop comes amid renewed expectations that the Federal Reserve will cut interest rates in response to the slowing economy. With traders now saying the Fed’s first rate cut of the post-pandemic era is all but guaranteed by September, former New York Federal Reserve President Bill Dudley wrote Wednesday that the Fed should seriously consider announcing a rate cut at its meeting next Wednesday.
“While it may already be too late to avoid a recession by cutting rates, procrastinating now unnecessarily increases the risk,” said Dudley, now an executive at UBS. wrote in a column for Bloomberg News.
Sosnick said Wednesday’s stock plunge wasn’t a total referendum on the overall state of the economy. Year-to-date, the S&P 500 is still up about 15%, while the Nasdaq is up about 18% and the Dow Jones Industrial Average is up 6%.
“It's more of a little bit of a dizzy spell for names that have been up a lot this year,” Sosnick said.
But signs of a broader economic slowdown continue to mount: the U.S. unemployment rate is rising, excess savings from the pandemic are being depleted and consumer borrowing stress is reaching new highs.
“We forecast relatively weak economic growth in the second half of 2024 and early 2025,” Ian Shepherdson, chief economist at research group Pantheon Macroeconomics, wrote in a note to clients Wednesday.
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