U.S. stocks opened lower and continued to fall, with all three major indices closing down. Poor earnings reports from Tesla and Alphabet weakened investor confidence in large tech stocks, leading to a fierce sell-off in related stocks.

S&P 500 index lost 2.31%, closing at 5,427.13;

Nasdaq slid 3.64% to end at 17,342.41;

Dow Jones Industrial Average shed 504.22 points, or 1.25%, closing at 39,853.87.

The "Magnificent Seven" drove the U.S. stock market's impressive performance this year, but as earnings are released, investors are starting to question whether the high valuations are justified. In fact, the upward momentum has already disappeared since last week, with many choosing to take profits.

Data shows that the current price-to-earnings ratio of S&P 500 index components is 21.4, while the historical average is 15.9. Among the companies that have reported Q2 earnings so far, 78.9% have exceeded expectations.

Meanwhile, due to the risk of excessive market concentration, sector rotation continues. Amid the market plunge, small-cap stocks outperformed large tech stocks, with the Russell 2000 index down 1.9%.

Vital Knowledge analyst Adam Crisafulli believes that the problem with tech stocks is not just imperfect earnings reports but also the historic rotation trades triggered by June's CPI data, which exacerbated the sell-off in tech stocks.

The continuous decline has even sparked concerns about an AI bubble burst, with investors questioning how long it will take to see returns on the substantial investments in AI technology. Mapsignals Chief Investment Strategist Alec Young said, "A lot of money is being spent now, and investors are realizing that returns will take time to materialize. In the short term, the giants' gains will be affected by how much is invested in this area."

Performance of Popular Stocks

Large tech stocks fell broadly: Nvidia $NVIDIA Corporation NVDA$ dropped over 6%, Meta and Google fell over 5%, Microsoft and Intel fell over 3%, and Apple and Amazon fell over 2%. Netflix dropped over 1%.

Tesla $Tesla Motors, Inc. TSLA$ fell more than 12%, the biggest one-day drop since September 2020. Tesla's profit declined for the second consecutive quarter, and the launch of Robotaxi was delayed. The leading electric car company continues to be affected by slowing demand and increased competition.

AT&T $AT&T Inc. T$ rose 5.2%, with the company's second-quarter wireless user growth exceeding market expectations. Its unlimited data plans are priced lower than competitors, attracting more customers.

Company News

IBM shares jump on earnings and revenue beat

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Ford shares tumble 11% after massive earnings miss

Ford $Ford Motor Company F$ Motor came in short of Wall Street’s second-quarter earnings expectations while beating on revenue, due to warranty costs that have plagued the automaker for several years now. The automaker increased its target for free cash flow but maintained its 2024 earnings guidance, disappointing some investors who had hoped for a hike.

Chipotle earnings and revenue top estimates, restaurant traffic rises again

$Chipotle Mexican Grill, Inc. CMG$ on Wednesday reported quarterly earnings and revenue beat analysts’ expectations as it saw higher traffic at its restaurants, bucking an industry slowdown. Shares of the company rose about 4% post-market.