U.S. stocks had their worst day since 2022 on Wednesday amid a broad pullback in tech companies as Wall Street traders sought to reduce their exposure to firms that have made big bets on artificial intelligence.
The tech-heavy Nasdaq index closed down 3.6%, while the broader S&P 500 index closed down 2.3% — both their worst performances in more than 18 months. The Dow Jones Industrial Average fell 1.25%.
The rout was led by Tesla, whose shares fell 12.3% for its worst day since 2020, and Google parent Alphabet, which fell more than 5% for its worst day since January.
Tesla reported Tuesday afternoon that its auto revenues fell 7% compared with the previous quarter, and CEO Elon Musk said in a follow-up earnings call that the company’s planned robotaxi rollout would be pushed back.
Although Alphabet reported earnings Tuesday that were in line with analysts’ expectations, traders appeared to seize on remarks CEO Sundar Pichai made on the company’s earnings call that signaled the tech world’s booming investments in artificial intelligence were not going to pay off in a short time frame.
“I think we are in this phase where we have to deeply work and make sure on these use cases [for AI products], on these workflows, we are driving deeper progress on unlocking value, which I’m very bullish will happen,” Pichai said. “But these things take time.”
Steve Sosnick, chief strategist at Interactive Brokers financial group, said Wall Street took that as a signal to sell off shares that had enjoyed the frenzied growth that tech stocks have been experiencing in recent months.
“We’re seeing some nervous profit-taking in some of the stocks that have been leveraged to AI that a lot of investors have come to rely on as a consistent source of stock market gains,” Sosnick told NBC News.
Alphabet also reported weaker-than-expected ad revenue from YouTube, which Google has owned since 2006.
Other major tech names having major losses Wednesday included Nvidia, the computer chip maker powering much of the AI revolution, whose shares fell more than 6% for their worst day since 2022; Facebook parent Meta was down 5%; Microsoft fell 3.5%; and Amazon lost 3%.
The major indices have been on a relatively consistent and positive run. Even after Wednesday’s dip, the S&P 500 remains up 13.8% in 2024, with the Nasdaq up 15.5% and the Dow up 5.7% in that time.
Wednesday’s sell-off comes amid renewed expectations for an interest-rate cut from the Federal Reserve in response to a slowing economy. While traders now say the Fed’s first cut of the post-pandemic period is virtually guaranteed by September, former Federal Reserve Bank of New York President Bill Dudley wrote Wednesday that the Fed needs to strongly consider announcing a cut at its meeting next Wednesday.
“Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk,” Dudley, now an executive at UBS financial group, wrote in a column for Bloomberg News.
Sosnick said Wednesday’s stock sell-off was not a total referendum on the broader state of the economy. Year to date, the S&P 500 has still had healthy gains of about 15%, while the Nasdaq is up about 18% and the Dow Jones Industrial Average is up 6%.
“This is much more about a little bit of vertigo in names that have climbed a lot this year,” Sosnick said.
But signs of a broader economic pullback continue to mount: The U.S. unemployment rate is rising, excess savings from the pandemic have been exhausted, and consumer borrowing stress is at fresh highs.
“We expect relatively weak economic growth in the second half of 2024 and early 2025,” Ian Shepherdson, chief economist at Pantheon Macroeconomics research group, wrote in a note to clients Wednesday.
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