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Headlines
- Wall Street faces mixed trading with Big Tech declines and smaller stocks rising
- U.S. economy shows strong growth, easing recession fears
- Smaller stocks outperform as interest rates impact the market
On Thursday, Wall Street experienced a growing divide as penny stocks and other previously overlooked sectors gained traction, while major Big Tech stocks relinquished more of their impressive gains. This mixed trading left the S&P 500 down by 0.3% in the morning, following its worst loss since 2022, which had significant impacts on financial markets globally. At 10:20 a.m. Eastern time, the Dow Jones Industrial Average was up 180 points, or 0.5%, while the Nasdaq composite was down 1.1%.
Continued losses for Nvidia and several key stocks that have driven the S&P 500 to numerous all-time highs this year weighed heavily on Wall Street. These stocks fell sharply after profit reports from Tesla and Alphabet disappointed, raising concerns that the enthusiasm around artificial intelligence technology had inflated Big Tech stock prices excessively. Six out of the group of stocks known as the "Magnificent Seven" dropped, with each losing at least 1.4%, and were significant drags on the S&P 500. Only Tesla managed to rise among them.
Despite the S&P 500's drop, the broader market saw most U.S. stocks climbing. Within the S&P 500, three out of every four stocks were on the rise.
Stocks rallied following a report indicating that the U.S. economy grew at an estimated annual rate of 2.8% from April through June, doubling the rate from the previous quarter and significantly exceeding economists' forecasts of 1.9%. This report alleviated worries about a potential recession, or at least postponed them, despite high interest rates putting pressure on the economy. Importantly for Wall Street(OTC:WSCO), the economic report was not strong enough to ignite fears of increased inflation.
Inflation has mostly continued its downward trend after a challenging start to the year, leading traders to anticipate that the Federal Reserve might begin lowering its main interest rate in September, according to CME Group data.
Such rate cuts would alleviate pressure on both the economy and financial markets, with expectations that they could significantly benefit smaller stocks and other market sectors that have lagged behind Big Tech in recent years. The Russell 2000 index of smaller stocks climbed 1.1%, outperforming other market indexes. It has risen more than 8% this month, compared to a 1% decline for large-cap stocks in the S&P 500, and has taken the lead in market performance.
In the bond market, the yield on the 10-year Treasury slipped to 4.22% from 4.28% late Wednesday. It has dropped considerably from its peak above 4.70% reached in April, providing a strong boost to stock prices.
Hasbro saw a 4% increase after reporting stronger-than-expected profit and revenue for the latest quarter, partly due to growth in its Wizards of the Coast business, which sells Magic: The Gathering and other games.
IBM was a major contributor to the Dow Jones Industrial Average's rise, gaining 3.6% after delivering better-than-expected profit and revenue for the last quarter. Conversely, Ford Motor was among Wall Street's losers, tumbling 17.2% after reporting profits that fell short of analysts' expectations. Its second-quarter net income declined by 4.7% due to a pretax loss in its combustion-engine unit caused by increasing warranty and recall costs.
Internationally, stock markets dropped following Wall Street's significant losses on Tuesday. Indexes fell by 3.3% in Tokyo, 1.8% in Hong Kong, and 1.8% in Paris, as concerns spread about whether companies worldwide would meet profit growth expectations and potential central bank actions on interest rates.
