USA market summary Jul 24, 2024

Disappointing quarterly results from mega-caps Alphabet (GOOGL) and Tesla (TSLA) weighed on major stock indexes Wednesday, with the tech-focused Nasdaq Composite® ($COMP) turning in its worst performance since October 2022.

All of the so-called Magnificent 7 stocks—Alphabet, Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla—weakened Wednesday.

Because of their massive combined market capitalization, this relative handful of stocks exerts a huge influence on the cap-weighted Nasdaq and broad-market S&P 500® index (SPX). For much of the past year, that influence has generally been positive, as investors tended to gravitate toward the big players, with enthusiasm for artificial intelligence (AI) overpowering concerns about lingering inflation.

However, now that investors are gearing up for a possible rate cut in the coming months, money has started rotating out of the big guys and into smaller stocks that could benefit more from easing monetary conditions.

Small caps generally held up a little better than their larger siblings Wednesday, with the Russell 2000® (RUT) weakening less than the Nasdaq and S&P 500. However, the Dow Jones Industrial Average® ($DJI) dipped the least, thanks especially to strong performances from pharmaceutical players Johnson & Johnson (JNJ) and Merck & Co. (MRK), which were up 2.6% and 1.2%, respectively.

“We may be seeing some exhaustion around the Magnificent 7 narrative, which just happens to be coming at a time when there has been a large momentum shift in the ‘small- versus large-cap’ dynamic,” said Schwab Senior Investment Strategist Kevin Gordon.

“Mega caps have dominated the momentum trade this year, and any time that factor hits a snag, it tends to lead to quick reversals to the downside,” he added. “We know from history that the largest companies are hard to bet against, but that doesn’t mean there can be continued consolidation if investors are looking to finally build up positions in market segments that haven’t been doing as well over the past year.”

Alphabet and Tesla weren't the only big results in the hopper today. The market was also digesting earnings misses from General Dynamics (GD), Visa (V), and frozen potatoes and french fry supplier Lamb Weston Holdings (LW). Better-than-expected results from AT&T (T) and Seagate Technology (STX), meanwhile, helped those stocks defy gravity.

On the economic front, the Census Bureau reported new single-family homes sales fell 0.6% to a seasonally adjusted annual rate of 617,000 in June—a seven-month low. High mortgage rates and home prices have hampered the real estate sector this year.

Here's where the major benchmarks ended:

• The S&P 500 fell about 129 points (2.3%) to 5,427.13;

• the Dow Jones Industrial Average shed 504 points (1.3%) to 39,853.87;

• the Nasdaq Composite ended 655 points lower (3.6%) at 17,342.41.

• The 10-year Treasury note yield (TNX) rose four basis points to 4.291%.

• The Cboe Volatility Index® (VIX) surged 23% to 18.13.