Stock Market Today: Wall Street Slump Sends S&P 500 Down 2.3% as Big Tech Skids

NEW YORK (AP) — A slide Wednesday sent U.S. stock indexes to their worst losses since 2022 after earnings reports from You're here And Alphabet helped slow Wall Street's momentum frenzy around artificial intelligence technology.

The S&P 500 index fell 2.3%, its fifth decline in six days. The Dow Jones Industrial Average lost 504 points, or 1.2%, and the Nasdaq Composite fell 3.6%.

Tesla and Alphabet's earnings reports weren't disasters, but they raised questions among investors about other market heavyweights whose spring results may miss expectations, said Sam Stovall, chief investment strategist at CFRA.

How many disappointments are we likely to experience? Maybe we should sell first and ask questions later.

Tesla was one of the market's heavyweights, falling 12.3% after reporting a 45% drop in profits in the spring, and its earnings fell short of analysts' forecasts.

Tesla has become one of the most valuable companies on Wall Street, not only because of its electric vehicles but also because of its artificial intelligence initiatives, such as the robotaxi. Putting a value on the company is difficult, according to UBS analysts led by Joseph Spak, and the challenge is that the time frame and probability of success are unclear.

At Alphabet, investors' patience for the company's big investments in AI may also be wearing thin.

Alphabet Inc. fell 5%, even though it reported better-than-expected profit and revenue in the latest quarter. Analysts pointed to some underlying weaknesses, including weaker-than-expected growth in YouTube ad revenue. They also said increased investment in AI and other spending could limit the amount of cash the company generates.

The biggest challenge for Alphabet may simply have been how much its stock has already risen, nearly 50% in the 12 months through Tuesday, on expectations of continued growth.

Earnings expectations are high for U.S. companies in general, but particularly for the small group of stocks known as The Magnificent SevenAlphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla need to continue generating strong growth after being responsible for most of the S&P 500’s record highs this year, while many other stocks struggled under the weight of high interest rates. Critics also call these star stocks too expensive after their meteoric rise.

The hope on Wall Street is that if the Magnificent Seven’s momentum falters, other stocks outside those countries can rise to support the market. Conditions could improve at the right time. Hopes of an imminent interest rate cut have helped small stocks in particular to buck the market leaderboard and surge in recent weeks.

The Russell 2000 index of small caps has jumped at least 1% in seven of the past 10 days, though its momentum has also hit a wall. It fell 2.1% on Wednesday.

Small stocks jumped as Treasury yields fell on expectations that inflation slows sufficiently for the Federal Reserve to begin lowering its main interest rate in September.

Treasury yields were mixed on Wednesday after preliminary data suggested U.S. business activity was down again in the manufacturing sector, although it continued to grow in services sectors.

The headline data suggests a best-case scenario, in which the economy is not in such good shape that it puts upward pressure on inflation but also not in such good shape that it slips into a recession. But Chris Williamson, chief economist at S&P Global Market Intelligence, said there are also some potentially worrying signals lurking beneath the surface, including heightened uncertainty around the November election.

The 10-year Treasury yield rose to 4.28% from 4.25% late Tuesday.

AT&T was a bright spot for the stock market, rising 5.2% after its latest quarterly profit met analyst expectations. Mattel jumped 9.8% after beating profit expectations, helped by growth in its Fisher-Price and Hot Wheels lines.

The problem for Wall Street is that even if more stocks were to rise, it would have to be more than the decline in big tech stocks, because of the considerable influence of this small group.

Nvidiafor example, fell 6.8%. That’s not as sharp as Tesla’s drop, but it’s still the heaviest weight on the S&P 500 because its total market value exceeds Tesla’s. A 1% gain for Nvidia has a bigger impact on the index than a 1% gain for any company other than Microsoft or Apple.

Outside of big tech companies, Lamb Weston fell 28.2%, the biggest loss in the S&P 500, after the purveyor of French fries and other frozen potato products reported weaker-than-expected profit for its latest quarter. The company said fewer diners visited restaurants in the spring than expected. It also warned that the pain could continue into its next fiscal year because of weaker demand driven by menu price inflation.

Overall, the S&P 500 lost 128.61 points to 5,427.13 points. The Dow Jones fell 504.22 points to 39,853.87 points and the Nasdaq slid 654.94 points to 17,342.41 points.

On foreign stock markets, indices fell in Europe and Asia.

France's CAC 40 index fell 1.1% as shares in luxury giant LVMH fell 4.7% in Paris after the owner of Louis Vuitton and Dior reported lower-than-expected quarterly sales.