Stocks dropped Thursday as Wall Street reacted to a mixed bag of corporate earnings, including disappointing results from Tesla. Investors also assessed fresh data that signaled a contracting economy.
All the major averages are on track for a week of losses, and the worst weekly performances for the Dow and the S&P 500 since March. The S&P is down about 0.2%, while the Nasdaq has lost roughly 0.5%. The Dow is down about 0.3% and on pace to snap a four-week win streak.
"Though, so far, it seems that equities have rallied, sentiment has been okay, and you're seeing equity volatility continue to grind lower, the story from corporates is that margins are under pressure and we continue to see that decline," said Anna Han, equity strategist at Wells Fargo Securities.
The mounting concern over downward pressure on profit margins hurt Tesla shares as the electric vehicle maker cut prices on some of its cars during the recent quarterly period. The company posted a more than 20% decline in net income from a year ago after the bell Wednesday. Shares fell nearly 10%.
Other technology stocks showed signs of weakness. Nvidia, Microsoft, Meta Platforms and Apple all finished lower. Seagate Technology shares lost more than 9% after missing estimates and issuing disappointing guidance, citing weak demand.
Disappointing results from both AT&T and American Express did little to alleviate some of the market concern. The payments company, offering another look at the health of the U.S. consumer, lost 1% as earnings per share fell short of estimates. AT&T fell 10.4% on slowing subscriber growth fears.
So far this earnings season, about 16% of companies in the S&P 500 have reported results, with about 76% beating EPS expectations, according to FactSet data as of Thursday. Many on Wall Street this season are bracing for an earnings decline. A general lack of profit forecasts, however, has begun to concern some investors.
The real test may come next week as earnings season ramps up with a slate of results from big technology companies, said Art Hogan, chief market strategist at B. Riley Financial.
"If we see a lot of degradation over the course of next week because of guidance ... that might cause a multiple contraction and we might see some of the S&P 500 sell off," he said. "But that just hasn't been the case yet."
He added that despite the incoming economic data, slowdown fears and a banking crisis that rattled the broader financial sector last month, markets have traded sideways in recent weeks.
"We haven't found something that's breaking the back in this market and we've given it plenty of chances," Hogan said.
Elsewhere, a raft of fresh of economic data seemed to signal a contracting economy and the potential for a much bigger slowdown than anticipated. The Philadelphia Fed manufacturing index fell more than expected, to its lowest level since May 2020, while jobless claims rose over the previous week.
Thursday also marked an action-packed day for central bank speakers ahead of the Fed's May policy meeting. That included Cleveland Fed President Loretta Mester, who said that higher interest rates likely loom ahead.
It appears that Wall Street analysts had a good gauge of the earnings outlook through the opening days of this earnings season, but sales results are showing more strain, according to The Earnings Scout.
Of the S&P 500 companies who have reported so far, 19% have missed earnings estimates but 40% have missed sales estimates, according to a tweet from The Earnings Scout.
The 60% sales beat rate would be the worst since 2020, according to the firm.
— Jesse Pound
Twitter CEO Elon Musk on Wednesday threatened to take legal action against Microsoft for allegedly using its data for artificial intelligence training.
"They trained illegally using Twitter data," he tweeted. "Lawsuit time."
The comments from Musk highlights the battle over data ownership as big technology companies ramp up investment in AI in the wake of ChatGPT's market debut. Microsoft recently made a multibillion investment in the OpenAI, the chatbot's creator.
Musk served as one of the initial founders of OpenAI but left the board in 2018. In recent months, the Tesla CEO has spoken out about OpenAI's transition from a nonprofit model to one influenced by Microsoft.
Tesla's stock fell more than 10% amid a drop in earnings.
— Samantha Subin
Technology stocks tumbled during the final hour of trading, pushing the Nasdaq Composite down 1.1%.
Electric vehicle maker Tesla led the declines, falling 11% on margin concerns. That also fueled declines in shares of competing EV companies Lucid and Rivian. Seagate technology was another major loser, falling 9% on weak guidance.
After a difficult 2022, many technology stocks have outperformed so far this year, pushing the tech-heavy index up nearly 15% year to date.
— Samantha Subin
The debt ceiling debacle in Washington has the potential to upend the financial market and prompt the Federal Reserve to cut interest rates, Bank of America warned.
The Wall Street firm sounded the alarms on the impact on investment grade credit market in the event the U.S. hits the debt limit and there is a potential government shutdown. The warning followed news that House Speaker Kevin McCarthy, R-Calif. released his plan to raise the debt ceiling by $1.5 trillion for about a year.
"Any economic damage could potentially be offset by earlier and/or larger Fed rate cuts. However, the effects of disruptions to the financial system are harder to quantify and could be significant," Bank of America credit strategist Yuri Seliger said in a note.
— Yun Li
Six companies in Jim Cramer's Investing Club portfolio — including Meta Platforms (META) and Walt Disney — have recently made the difficult decision to cut thousands of jobs in the face of a worsening economic outlook.
Meta began laying off some employees with technical backgrounds Wednesday. Disney plans to cut thousands of jobs next week on its television, film, theme parks and corporate teams, according to a Bloomberg report.
While terrible when people lose their jobs, as investors, we view these moves as necessary to protect profits in these tough times.
Club members can read the full story on what Cramer thinks about each situation and whether the company's plans go far enough.
Thursday's market moves may be giving investors "deja vu" from Wednesday, but BTIG's Jonathan Krinsky says some key underlying fundamentals could shift the similarities.
"We think there are better odds of a late day fade than yesterday," the chief market technician wrote in a Thursday note, due in part to heavier volumes after the lightest of the year during Wednesday's trading.
Equities are also a day beyond the VIX's expiration and "anecdotally, it feels as though more participants have given up in thinking we can't sustain weakness throughout the day," he added.
The VIX, a common measure of market volatility, is currently near the 15-months low it touched on Wednesday. It last traded up 3.34% to 17.01.
"Our view is that downside in equities is a much more likely outcome over the next couple of months than a U.S. debt default, yet the market is pricing the opposite," he said. "The irony is that if, in fact, there was a real default, VIX would likely be significantly higher."
— Samantha Subin
Tesla could be forced to cut vehicle prices in China as pressure to margins continues to mount, according to Alliance Bernstein senior analyst Toni Sacconaghi.
"I still worry in the near term that we are going to see further price cuts. Tesla hasn't cut prices in China yet, [and] we think that's likely and not baked into the numbers," Sacconaghi said on CNBC's "Squawk on the Street.
Tesla reported mixed quarterly results on Wednesday, with net income and earnings falling 20% from a year earlier.
Sacconaghi added that Tesla's aggressive growth metrics may be unachievable as well without any scalable new products on the horizon.
"I think as we look to next year, Tesla wants to grow another 30, 40, 50 percent and the challenge is, it doesn't really have anything new coming to market - it has the cyber truck but will be low volume," Sacconaghi said. "So how will Tesla grow 40 50 percent again next year? It's probably going to put more pressure on margins."
— Brian Evans
The First Trust NASDAQ Cybersecurity ETF is down 3% month to date, on pace for its first negative month in four months and its worst month since December.
The Global X Cloud Computing ETF has declined 5% month to date, on pace for its second monthly loss in three and its worst month since September 2022, when it lost 5.9%.
The VanEck Semiconductor ETF is nearly 4% lower since the start of the month. The ETF is headed toward its first monthly loss in four months and its worst month since December.
— Hakyung Kim, Nicholas Wells
The first-quarter earnings season has kicked into high gear. Of the 81 companies in the S&P 500 that have reported earnings to date, 76.5% reported above analyst expectations, according to Refinitiv.
Expectations are low for corporate America with stubborn inflation and recession fears. The S&P 500 companies are expected to post a decline of 6.8% for earnings this quarter, which would mark the largest earnings decline since the second quarter of 2020, according to FactSet.
— Yun Li
These are some of the stocks making the biggest moves in Thursday's session:
— Alex Harring
Tesla CEO Elon Musk told investors during his first quarter earnings call that he anticipates electric vehicle-related commodity prices will remain volatile until next spring.
Lithium, a key component of batteries for electric vehicles, has seen prices swing amid high demand from auto companies as they expand electric vehicle manufacturing.
"I think we're in uncertain times. And if somebody's got a crystal ball they can lend me, I'd really like to borrow it. But these are uncertain times," said Musk.
"My guess is it's economic stormy weather for about a year or so. And then, it will hold roughly 12 months and then – but this is my guess, it's just pure speculation. Stormy weather for about 12 months, and then provided there are no major geopolitical wild cards that show up, that things start getting sunny around spring next year."
In December 2021, lithium carbonate spot prices were at 277,500 yuan per ton, or roughly $33,105. Prices subsequently spiked to a record high of almost 600,000 yuan per ton, or approximately $87,311 in November 2022, more than 12 times higher from price levels in January 2021.
— Hakyung Kim, Lee Ying Shan
Cleveland Federal Reserve President Loretta Mester indicated Thursday that interest rates could have a little further to rise this year and stay for for a while.
"I anticipate that monetary policy will need to move somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time," she said during a speech in Akron, Ohio.
"Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on economic and financial developments," Mester added.
With the benchmark federal funds rate is currently targeted between 4.75%-5%, Mester's comments indicate that another hike could be on the horizon. That meshes with market pricing, which is assigning an 83% probability of a 25 basis point increase in May. However, markets also think the Fed will be cutting by the end of the year as the economy slows.
Mester added that she has seen progress on inflation but that it "remains too high."
"We are much closer to the end of the tightening journey than the beginning, and how much further tightening is needed will depend on economic and financial developments and progress on our monetary policy goals," she added.
Blackstone CEO Stephen Schwarzman said on the financial firm's earnings call that there is not "widespread distress in the real economy" but that higher rates are hurting investors and causing unintended consequences, including the bank turmoil in the U.S. and Europe last month.
Schwarzman also warned that owners of corporate real estate "may be unable to extend financing" in a world with higher rates and historic office vacancies.
Blackstone has less than 2% exposure to the U.S. office space in its real estate equity portfolio, Schwarzman said.
Shares of Blackstone were down less than 1%.
— Jesse Pound
— Samantha Subin
The iShares U.S. Home Construction ETF (ITB) hit a new 52-week high going back to January 2022 and is on pace for the sixth positive day in the last seven days.
The ETF is up over 6% week to date and is on pace for the second straight positive week.
— Michelle Fox, Gina Francolla
Gold prices were trading at $2,015.4 at 119:35 a.m. ET, up 0.4%, after hitting a session high of $2,023.3 earlier Thursday morning.
Gold is up slightly week to date. If the gains last, it will be the seventh positive week in 8 weeks.
— Hakyung Kim, Gina Francolla
Tesla shares opened Thursday about 8% lower as investors parsed the earnings report that came after the bell Wednesday. It's the worst post-earnings open for the electric vehicle maker since the pandemic began, according to data from Bespoke Investment Group.
The stock hasn't seen a post-earnings open drop that large since the stock was down 11.9% on July 24, 2019, data from the firm shows.
The company posted a modest beat on revenue, while earnings per share were in line with analyst expectations. But net income and GAAP earnings both tumbled more than 20% from last year.
Thursday's open also stands in sharp contrast to the last time the company reported earnings. Shares opened up 10.8% on Jan. 25, which was the trading session following Tesla's fourth-quarter report.
— Alex Harring
Tesla CEO Elon Musk hinted that he's prioritizing growth over profitability amid a series of price cuts on the electric vehicles.
"We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin," Musk said on Tesla's earnings call Wednesday evening.
Tesla cut prices for some of its Model Y and Model 3 electric vehicles for the sixth time this year amid concerns about the effect on its profit margins.
Musk stressed that he expects the company to be able to generate significant profit through autonomy. Tesla started discussing its ambitions in self-driving technology in 2016.
— Yun Li
Energy stocks were the worst performers in the S&P 500 Thursday morning.
The sector shed 1.8% shortly after 10 a.m. ET. Real estate, which was the next worst performer, lost a relatively muted 1%.
All 11 of the broad index's sectors were in the red. The index as a whole was down 0.6%.
Valero Energy and APA Corporation were the worst performing stocks in the energy sector, with each dropping around 2.5%. With a 0.1% gain, Coterra Energy was the sole member of the sector to buck the downward move.
— Alex Harring