Stocks hit selloff mode Wednesday, and the Nasdaq Composite registered its worst day since February, after Fitch downgraded the long-term rating for the U.S. and risk-off sentiment resurfaced.
The tech-heavy index shed 2.17% to end at 13,973.45, while the S&P 500 pulled back 1.38% to close at 4,513.39. The Dow Jones Industrial Average tumbled 348.16 points, or 0.98%, to finish at 35,282.52.
Fitch Ratings cut the long-term foreign currency issuer default rating for the U.S. to AA+ from AAA Tuesday night, citing "expected fiscal deterioration over the next three years."
The last time the U.S. got a downgrade from a major ratings agency was in 2011 when Standard & Poor's cut the rating to AA+ from AAA.
"Investors may use this Fitch downgrade as a reason to take some profits, but we think that was probably a natural part of the market cycle anyway, after such a strong run, very little volatility," said Mona Mahajan, senior investment strategist at Edward Jones. "Broadly speaking, this hasn't deterred our fundamental view of the economy or markets."
The economic picture continues showing signs of resilience, and conditions look very different compared to the last time U.S. credit got a rating downgrade, she added.
Wednesday's selloff bucked the recent months-long uptrend fueled by growth stocks. Technology stocks led the declines as the 10-year Treasury yield hit its highest level since November. Chinese tech names JD.com and Baidu fell more than 4% after China proposed limits on smartphone use for minors. Alibaba dropped 5%. Mega caps Amazon, Alphabet, Microsoft more than 2% each, while Nvidia shaved off nearly 5%.
Jay Woods, chief global strategist at Freedom Capital Markets, called Wednesday's move out of technology stocks and into defensive sector a long overdue "constructive rotation" after the tech-fueled rally.
"There is money still being put to work," he said. "There's no rush to the exits right now. It's just a headline that's given us fuel to finally move some chips around a little bit without upsetting the general overall trends, which have been up since the beginning of the year when it comes to tech."
Meanwhile, Wall Street scrutinized a fresh batch of earnings results. CVS Health rose 3.3% after posting strong earnings as it trims costs, while Humana gained 5.6% after posting lower-than-expected medical costs. Advanced Micro Devices fell 7% after issuing a disappointing forecast a day earlier, dragging down other chip stocks. Meanwhile, SolarEdge Technologies tumbled 18.4% a day after it missed revenue expectations.
Earnings season is more than halfway through and continue to come in stronger than expected. Of the S&P 500 companies that have reported, about 82% have posted positive surprises, according to FactSet data.
— CNBC's Darla Mercado contributed to this report.
Stocks hit selloff mode Wednesday, with the Nasdaq Composite notching its worst day since February.
The Nasdaq Composite index shed 2.17% to end at 13,973.45, while the S&P 500 pulled back 1.38% to close at 4,513.39. The Dow Jones Industrial Average tumbled 348.16 points, or about 0.98%, to finish at 35,282.52.
— Samantha Subin
The selloff in the S&P 500 Wednesday was broad based, with 413 stocks declining in the broader index. There were 87 advancers in the benchmark.
The biggest loser was backup power generator company Generac, which was last down by more than 23%. Paycom Software and SolarEdge Technologies dropped more than 18%.
The best-performing stock was Waters Corporation. That name was up by more than 7% in afternoon trading.
— Sarah Min
Semiconductors and cloud stocks managed to rise from their session lows Wednesday. Shares briefly reached their lowest levels in 2023 before partially recouping losses.
The VanEck Semiconductor ETF (SMH) is down 3.8%, putting it on pace for back-to-back losses. If it closes down more than 3.54% for the day, Wednesday would mark its worst day since July 20. All components of the chips ETF are lower on the day.
Nonetheless, the chips fund is still up more than 52% year to date.
The First Trust Cloud Computing ETF (SKYY) is down 4% for the day, on pace to break a three-day win streak. If losses increase beyond 3.99%, the cloud ETF would have its worst day since Feb. 3.
Paycom is the second-worst performer in the S&P 500 and the worst in SKYY Wednesday, on pace to break a seven-day win streak with its worst day on record, back to its IPO in April 2014.
— Hakyung Kim
The Fitch downgrade of U.S.′ long-term rating Tuesday night mostly amounts to "noise" as far as the market is concerned — though it could help it digest its recent gains.
Fitch Ratings cut its long-term foreign currency issuer default rating for the U.S. to AA+ from AAA, saying it expects "fiscal deterioration over the next three years." The downgrade was immediately criticized by Treasury Secretary Janet Yellen and others in Washington, who said the rating is based on outdated information.
However, Wall Street strategists mostly took the downgrade in stride. The S&P 500′s 17% rally this year, and the Nasdaq Composite's 33% advance, had some traders worrying that equities have surged "too far, too fast."
"I think that it's just a short term glitch that will end up representing a good buying opportunity through the end of the year," said Sam Stovall, chief investment strategist at CFRA. Stovall's S&P 500 year-end target is at 4,575.
CNBC Pro subscribers can read the full story here.
— Sarah Min
Industrial manufacturer Oshkosh Corporation is showing significant growth potential, according to Baird.
Analyst Mircea Dobre upgraded shares to outperform from neutral and raised his price target to $137 from $89, suggesting a 35% upside from where the stock closed Tuesday.
Dobre highlighted Oshkosh's second-quarter results as a sign of operational improvement for the company after it dealt with supply chain issues and price-cost mismatches over the past 18 months.
The stock has advanced 15.2% year to date and gained more than 1% on Wednesday. CNBC Pro subscribers can read more here.
— Pia Singh
Jamie Dimon isn't too bothered by Fitch's downgrade of the United States' long-term credit rating.
"It doesn't really matter that much" because it is the market, and not rating agencies, that determine borrowing costs, the JPMorgan Chase CEO told CNBC's Leslie Picker on Wednesday. "They point out some issues which we all knew about."
Dimon called it "ridiculous" that other countries have higher rating than the U.S.
— Hugh Son, Samantha Subin
Intel led the Dow down in Wednesday's session.
The semiconductor stock dropped 3.4%, making it the worst performer of the 30 stocks in the Dow. As a whole, the index is down 0.8%, with more than two-thirds of members trading below flat.
UBS is continuing to recommend a more risk-averse approach to stock picking, especially after July's blowout rally.
"So, while the macroeconomic and policy outlook brightened over the course of the month, we continue to recommend a selective approach to equities, focusing on parts of the market that have so far lagged the 2023 rally," said UBS Global Wealth Management's Mark Haefele in a Wednesday note.
According to the chief investment officer, much of the good news has already been priced into equities, limiting the upside from here.
Given this setup, the firm is favoring fixed income as yields hover at attractive levels.
— Samantha Subin
Match Group shares are set to pop as Tinder recovers, according to BTIG.
The company posted an earnings and revenue beat for the second quarter Tuesday. Management's current-quarter guidance also came above analyst estimates. BTIG noted that Tinder is showing an improving trend in its daily new users numbers and reactivation trend.
"Tinder hit a wall last year," with growth slowing into 2023, analyst Jake Fuller said. But he noted that net add outlook is now improving, with accelerating growth and upward-moving estimates. Fuller upgraded Match Group to buy from neutral.
Shares rose slightly in afternoon trading.
CNBC Pro subscribers can read more about the upgrade here.
— Hakyung Kim
The semiconductor manufacturer's shares have surged 70% year to date amid the AI boom. However, despite the company's second-quarter earnings announcement on Monday topping analyst estimates, the global PC market slump has dampened the company's sales forecasts.
Following the earnings report, Bank of America reiterated its neutral rating on the stock while lifting its price target by just $2 to $132. The new price target implies 12.2% upside from where shares closed Tuesday.
"AI optionality [is] offset by growth deceleration," analyst Vivek Arya said in a Tuesday note.
The full story can be found here.
— Hakyung Kim
Here are some of the names moving during midday trading:
SolarEdge Technologies — Shares dropped 19% after the solar company reported $991 million in revenue, missing analysts' estimates of $992 million, according to Refinitiv. SolarEdge also issued disappointing third-quarter revenue guidance.
CVS Health — The stock gained 3.4% during midday trading Wednesday after the retail pharmacy reported earnings of $2.21 per share on revenue of $88.9 billion. Wall Street analysts expected $2.11 per share on earnings of $86.5 billion, per Refinitiv.
Norwegian Cruise Line — Shares sank 3%, a day after the cruise liner gave weaker-than-expected guidance for the third quarter. However, its second-quarter earnings beat analysts' estimates. Shares were also downgraded by Susquehanna to neutral from positive.
To see more stocks making midday moves, read the full story here.
— Michelle Fox
The Nasdaq Composite is on pace to end down around 2.2%, which would be the worst daily performance since February.
The technology-heavy index last closed with a bigger loss on Feb. 21, which it finished about 2.5% lower.
But if the Nasdaq takes another leg down and ends the session worse than 2.5% below flat, it would be the worst session of the year. The next marker to watch was met on Dec. 15, when the index dropped 3.3%.
— Alex Harring, Gina Francolla
Spirit AeroSystems shares tumbled 20% after the key supplier to Boeing reported a wider-than-expected loss for the last quarter and lowered its shipment forecast for the year following a brief labor strike earlier this summer.
The strike at the Wichita, Kansas plant will reduce deliveries of 737s -- Boeing's best-selling plane -- to 370 to 390 this year, sharply lower than its estimate to ship between 390 and 420 of them this year, which "will negatively impact expected revenue, earnings and cash flow for 2023," Spirit said in a quarterly earnings report.
— Leslie Josephs
Communication services and information technology stocks lagged during Wednesday's session, falling more than 2% each.
The communication services sector dropped 2.1%. Electronic Arts led the declines, last down nearly 7%. Take-Two Interactive and Meta Platforms dropped more than 3% each, while Alphabet, Walt Disney and Netflix all fell more than 2%.
Information technology names were among the worst-performing stocks, with the sector last down 2.5%. SolarEdge was the biggest laggard, cratering nearly 19% on disappointing guidance. First Solar dropped more than 6%.
Advanced Micro Devices tumbled more than 7% despite better-than-expected results. The downward move rippled across the semiconductor and software industries, with Nvidia and Micron Technology last down 5.8% and 4.6%, respectively. Palo Alto Networks edged 7% lower.
— Samantha Subin
Defensive sectors marked a bright spot in the S&P 500 as the major indices hit selloff mode in the wake of Fitch's U.S. credit rating downgrade.
The consumer staples and health care sectors rose 0.5% each at around midday Wednesday. CVS Health and Humana contributed to the health care sector's gains, rising 3.6% and 6.2%, respectively on strong earnings. Some other winners included Waters and Vertex Pharmaceuticals, which added 7.6% and 2.5%, respectively.
Consumer staples got a lift from Hormel Foods, Campbell Soup, Walgreens Boots Alliance and Molson Coors Beverage, which added more than 2% each. General Mills, Conagra and PepsiCo all rose at least 1%. Bunge jumped 5.1% on strong earnings and a guidance lift.
— Samantha Subin
Investment firm Rosenblatt disagrees with investors who sold Pinterest following its earnings report.
Despite what analyst Barton Crockett called a "decent" second quarter report released Tuesday, shares were down around 3%. The company beat Wall Street expectations on revenue when comparing performance against the consensus estimate compiled by FactSet.
Crockett upgraded shares to buy from neutral. He cited margins rising, revenue ramps, the positive reaction to commerce and a deal to increase the advertising load in his decision.
"In a choppy ad market, with cost-pressures galore, Pinterest is making enticing progress, laying a foundation for revenue acceleration, margin expansion and rising relevancy that can bolster the shares," he said.
— Alex Harring
The 10-year yield hit 4,102% Monday, marking its highest level since November 10, 2022. Jefferies' chief market strategist David Zevros believes that the equity market may start to see a bit of a crunch if the 10-year yield continues to push higher.
"If we start to really push 10-year yields up to the top of the range, [such as] 4.25% or higher, I think that's where you can get a little bit of an issue with with people. People thinking about valuation slightly differently," Zevros told CNBC's "Squawk on the Street" on Wednesday.
The credit sectors of the market, particularly leveraged loans, may be easier than stocks to "skin the return" as yields remain higher for longer, Zevros added.
— Hakyung Kim
Canaccord Genuity upgraded Freshworks shares to buy from hold, citing several positive catalysts ahead for the software company.
"There was a lot to like in Freshworks' Q2 print, the second in a row that we'd describe in that light," Hynes said in a Tuesday note. The company is "bringing it all together — [Go-to-market (GTM)] enhancements, operating efficiency, AI products and more," Hynes added. The company posted its second-quarter results Tuesday.
Freshworks shares jumped more than 18% on Wednesday.
To read more about the upgrade, click here.
— Hakyung Kim
Shares of Chinese technology stocks were under pressure on Wednesday after regulators in China proposed limits on the use of smartphones for minors.
The proposed rules call for a "minor mode" for smartphones that limits both time use and content that can be accessed, depending on how old a child is.
Shares of JD.com, Baidu and Alibaba all fell more than 2% in morning trading. Shares of Tencent Music and the KraneShares CSI China Internet ETF (KWEB) fell more than 3%.
— Jesse Pound
A selloff in SolarEdge shares following its earnings report has dragged on solar stocks.
The Invesco Solar ETF (TAN) is down more than 4% in morning trading. That puts it on track to post its worst dance since April 26, when the fund finished 5.5% lower.
SolarEdge led the fund lower after missing revenue expectations for the quarter. The company reported $991 million, slightly under the $992 million consensus estimate of analysts polled by Refinitiv.
Shares have tumbled about 17.5%, putting the stock on pace for its worst session since Aug. 3, 2022, when it closed 19.1% down.
Shoals, SunRun, Enphase and SunPower also contributed to the ETF's drop, with each stock losing around 5%.
— Alex Harring, Gina Francolla