The S&P 500 and Nasdaq fell on Thursday, weighed down by drops in Tesla and Netflix following their quarterly results, but the Dow advanced for a ninth straight day thanks to gains in Johnson & Johnson following a strong annual forecast. The TSX ended lower, with a jump in bond yields putting downward pressure on the tech sector.
Tesla’s shares tumbled 9.74%, their biggest one-day percentage drop since April 20, after the electric-vehicle maker reported a drop in its second-quarter gross margins to a four-year low and CEO Elon Musk hinted at more price cuts.
Netflix slumped 8.41% to suffer its biggest one-day percentage decline since December 15, after the streaming video company’s quarterly revenue fell short of estimates.
“The news last night in Tesla and Netflix, while it’s not the end of the world does give people a reason to wake up and go ‘wow, maybe I shouldn’t be chasing these names up here,’” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.
“Let me take some money off the table and redeploy it into big boring names.”
The Dow, however, was able to climb as Johnson & Johnson gained 6.07% after reporting results and announcing an annual profit forecast raise.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 54.3 points, or 0.3%, at 20,436.87.71, after posting a two-month high the previous day.
“We’re in a situation where the risk-reward is not positive,” said Joseph Abramson, co-chief investment officer at Northland Wealth Management.
“Valuations are pricey, liquidity is decreasing, growth is slowing and we’re entering a risky part of the year. August and September are usually not that kind to markets.”
The Toronto market’s technology sector fell 2% as bond yields climbed. Higher interest rates reduce the value to investors of the future cash flows that technology and other high growth sectors are expected to produce.
The U.S. 10-year bond by late afternoon was yielding 3.86%, up 12 basis points on the day. The Canadian 5-year bond yield, influential on the setting of mortgage rates in this country, was up 18 basis points at 3.92%, not far from the multi-year high of 4.02% reached earlier this month.
The jump in bond yields came amid mixed U.S. economic data. Weekly jobless claims showed that the labour market remains tight, but other data indicated the housing and manufacturing sectors continue to slump.
The TSX materials group, which includes precious and base metals miners and fertilizer companies, lost 1.7% as the price of gold fell.
The energy sector was a bright spot. It was up 0.2% as oil settled 0.4% higher at $75.63 a barrel, helped by lower U.S. crude inventories.
The Dow Jones Industrial Average rose 163.97 points, or 0.47%, to 35,225.18, the S&P 500 lost 30.85 points, or 0.68%, to 4,534.87 and the Nasdaq Composite dropped 294.71 points, or 2.05%, to 14,063.31.
The decline for the Nasdaq was its largest one-day percentage fall since March 9, while the Dow registered its ninth straight session of gains, its longest winning streak since September 2017.
The Nasdaq has surged 34.4% this year to levels not seen since early April 2022, supported by a seemingly unstoppable rally in megacap growth names such as Nvidia and Meta on optimism over the potential of artificial intelligence, a U.S. economy that has proven more resilient than many anticipated and expectations the end of then Federal Reserve’s aggressive rate hike cycle was on the horizon.
The S&P technology, communication services and consumer discretionary sectors each dropped at least 2% on Thursday.
Tech shares saw additional pressure after business software maker SAP trimmed its full-year outlook for cloud revenue U.S. listed shares of SAP closed down 6.34%.
United Airlines advanced 3.23% after lifting its full-year profit outlook and posted its highest ever quarterly earnings on booming demand for international travel.
With 77 S&P 500 companies having reported results through Thursday morning, second-quarter earnings are expected to have declined 7.9%, Refinitiv data showed, more than the 5.7% fall expected at the start of the month.
Volume on U.S. exchanges was 11.16 billion shares, compared with the 10.6 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 1.53-to-1 ratio; on Nasdaq, a 1.88-to-1 ratio favored decliners. The S&P 500 posted 32 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 67 new highs and 71 new lows.
Reuters, Globe staff