Big Tech and the Fed are making investors nervous.
Tension grows on Wall Street as Fed decision approaches. Investors are particularly focused on the ongoing earnings season. Merck & Co, among others, is seeing a significant decline, while traders are snapping up PayPal shares.
The anticipation of key events has pushed most U.S. stock indices into negative territory. The Dow Jones Industrial Average of blue-chip stocks closed Tuesday 0.5 percent higher at 40,743 points. However, the broader S&P 500 gave up its initial gains and lost 0.5 percent to 5,436. The tech-heavy Nasdaq fell 1.3 percent to 17,147. Investors are eagerly awaiting comments from Fed Chair Jerome Powell on Wednesday. While traders do not expect a rate cut this week, they are confident of a rate hike in September.
Tech giants' earnings reports remain in focus. Microsoft's results, released after the market close, showed that its cloud division grew less than analysts had hoped, sending the stock down 7 percent in after-hours trading. Disappointing financial reports from Tesla and Alphabet have already sparked a sell-off in the tech sector. "Big Tech has had a spectacular rally, but to continue, companies need to show profits from AI and investments in that area," said Brian Klimke, chief market strategist at Cetera Investment Management. "If they don't, more investors may shift to the stocks of smaller companies." The Russell 2000 index of U.S. small-cap stocks, which has gained around 10 percent since early July, rose a modest 0.3 percent to 2,243 points.
Concerns about demand from China, the world's second-largest economy, also dampened investor sentiment. While the Communist Party's politburo announced plans to boost consumption, no new economic stimulus measures were mentioned. The prospect of weaker demand pushed down oil prices. The North Sea Brent crude and U.S. West Texas Intermediate (WTI) both fell by around 1 percent to $78.82 and $75.01 per barrel, respectively.
CrowdStrike was in the spotlight among individual stocks, with its shares plunging nearly 10 percent. Delta Air Lines is reportedly seeking damages from the cybersecurity specialist following a global IT outage. The company's software update caused Microsoft applications to crash, leading to widespread disruption on July 19. Delta has since canceled over 6,000 flights due to the incident.
Merck & Co shares also tumbled, losing nearly 10 percent. The pharmaceutical giant's quarterly results failed to impress investors, who are reportedly concerned about a slowdown in deliveries of its Gardasil vaccine in China. Procter & Gamble shares also came under pressure, falling 4.8 percent. The consumer goods giant reported weaker demand for luxury skincare products and Pampers diapers in China during the last quarter. Meanwhile, PayPal shares rose 8.5 percent after the company raised its full-year guidance for the second time.
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Despite the positive sentiment towards PayPal shares, traders continue to engage in [trading in shares], seeking potential profits. The performance of tech giants like Microsoft and Amazon, along with China's demand, significantly influence the stock market, prompting investors to remain vigilant.
