However, the pair’s earnings disappointed and this sparked a sell-off on Wednesday, particularly concentrated in tech names. According to Dow Jones Market Data, the Magnificent Seven group of tech mega-caps collectively lost $768bn in market value for the session. Optimism over artificial intelligence (AI) had been a key driver of gains for much of the year, however Alphabet’s earnings prompted doubts over AI spending and so other reports from tech giants this week will be closely monitored. Wednesday marked the worst session for the S&P 500 since December 2022, down 2.3%, while the Nasdaq Composite lost 3.6% in its biggest drop since October 2022.
There was also the release of the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures (PCE) price index. On a monthly basis the core PCE index rose 0.2% and year-on-year (YoY) it held at 2.6%, raising expectations that the central bank will begin to cut interest rates from its September meeting. Stocks staged a rebound on the final day of trading for the week, following a string of negative sessions. Despite this, the Nasdaq lost 2.1% for the week and the S&P 500 fell 0.8%. In contrast, in a sign of investors looking beyond big-tech and rotating, the Dow Jones Industrial Average was up 0.7%, while faring even better was the small-cap Russell 2000, up over 3%.
European markets also experienced a mid-week dip, following the tech decline seen in the US but also pressured by their own underwhelming earnings. One such area that disappointed was the luxury sector, particularly LVMH which reported a 14% sales slump in key Asian markets for the second quarter, and peer Kering saw a fall in underlying operating profit. However, luxury names did stage a comeback on Friday, with Hermes seeing slightly better-than-expected second quarter sales. For the week, the pan-European STOXX 600 added 0.6%, mainly due to gains seen on Friday. Regional performance was mixed with German and UK major indices up while French and Italian indices dropped.
Japanese equities had a tough week, pressured by the slump in US tech shares as well as ongoing yen strength. The Nikkei 225 sank 6% for the week and entered a technical correction, seeing a 3.3% slump on Thursday, its biggest drop since June 2021. The yen had been trading at around a two-and-a-half month high, with short positions being unwound. It was also fuelled by growing beliefs of a narrowing of the interest differential between the US and Japan, with the Bank of Japan to meet this week. Chinese equities also lost ground with the Shanghai Composite losing over 3% and the Hang Seng down 2.3%. Confidence over the economic recovery is shaky, with the latest GDP figure slowing for the second quarter, and stocks failed to cheer surprise interest rate cuts from the People’s Bank of China.
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Nikkei 225 experiences 6% weekly drop as yen strengthens
Earnings season was in focus and amongst notable reporters were Tesla and Alphabet.
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