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Financial Markets                      07/24 16:21

   

   NEW YORK (AP) -- A wipeout on Wednesday sent U.S. stock indexes to their 
worst losses since 2022 after profit reports from Tesla and Alphabet helped 
suck momentum from Wall Street's frenzy around artificial-intelligence 
technology.

   The S&P 500 tumbled 2.3% for its fifth drop in the last six days. The Dow 
Jones Industrial Average dropped 504 points, or 1.2%, and the Nasdaq composite 
skidded 3.6%.

   The profit reports from Tesla and Alphabet weren't disasters, but they 
raised questions among investors about which other market heavyweights' 
springtime results could fall short of expectations, said Sam Stovall, chief 
investment strategist at CFRA.

   "How many disappointments are we likely to see? Maybe let's sell first and 
ask questions later."

   Tesla was one of the heaviest weights on the market and tumbled 12.3% after 
reporting a 45% drop in profit for the spring, and its earnings fell short of 
analysts' forecasts.

   Tesla has become one of Wall Street's most valuable companies not just 
because of its electric vehicles but also because of its AI initiatives, such 
as a robotaxi. That's a tough business to assign a value to, according to UBS 
analysts led by Joseph Spak, and the "challenge is that the time frame, and 
probability of success is not clear."

   At Alphabet, meanwhile, investors' patience with the company's big AI 
investments may also be running thinner.

   Alphabet dropped 5% even though it delivered better profit and revenue for 
the latest quarter than expected. Analysts pointed to some pockets of weakness 
underneath the surface, including weaker growth in advertising revenue for 
YouTube than expected. They also said increased AI investments and other 
spending could crimp how much cash it generates.

   The larger challenge for Alphabet may have simply been how much its stock 
has already rallied, nearly 50% in the 12 months through Tuesday, on 
expectations for continual growth.

   Profit expectations are high for U.S. companies broadly, but particularly so 
for the small group of stocks known as the " Magnificent Seven." Alphabet, 
Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla need to keep 
delivering powerful growth after being responsible for the majority of the S&P 
500's run to records this year, when many other stocks struggled under the 
weight of high interest rates. Critics are also calling these superstar stocks 
too expensive following their rocket rides higher.

   The hope on Wall Street is that if momentum does flag for the Magnificent 
Seven, more stocks outside them can rise to support the market. Conditions may 
be improving at the right time. Hopes for imminent cuts to interest rates have 
helped smaller stocks in particular to flip the market's leaderboard and jump 
in recent weeks.

   The Russell 2000 index of smaller stocks had leaped at least 1% in seven of 
the last 10 days, though its momentum also slammed into a wall. It dropped 2.1% 
Wednesday.

   Smaller stocks had been jumping as Treasury yields eased on expectations 
that inflation is slowing enough for the Federal Reserve to begin lowering its 
main interest rate in September.

   Treasury yields were mixed Wednesday after preliminary data suggested U.S. 
business activity is back to shrinking in manufacturing, though continuing to 
grow in services industries.

   The overall data suggested a "Goldilocks" scenario, where the economy is not 
so hot that it puts upward pressure on inflation but not so cold that it veers 
into a recession. But Chris Williamson, chief business economist at S&P Global 
Market Intelligence, said some potentially concerning signals were also lying 
beneath the surface, including heightened uncertainty around November's 
elections.

   The yield on the 10-year Treasury rose to 4.28% from 4.25% late Tuesday.

   AT&T was a bright spot for the stock market, rising 5.2% after its profit 
for the latest quarter matched analysts' expectations. Mattel jumped 9.8% after 
topping expectations for profit, aided by growth for its Fisher-Price and Hot 
Wheels lines.

   The problem for Wall Street is that even if more stocks were to rise, 
they'll need to do so by more than Big Tech stocks are falling because of how 
much influence that small group carries.

   Nvidia, for example, fell 6.8%. That wasn't as steep as Tesla's drop, but it 
was still the single heaviest weight on the S&P 500 because its total market 
value tops Tesla's. A 1% move for Nvidia packs more punch on the index than a 
1% move for any company other than Microsoft or Apple.

   Outside of Big Tech, Lamb Weston lost 28.2% for the worst loss in the S&P 
500 after the supplier of French fries and other frozen potato products 
reported weaker profit for the latest quarter than expected. The company said 
fewer diners visited restaurants during the spring than it expected. It also 
warned challenges could continue into its upcoming fiscal year because of 
softer demand due to "menu price inflation."

   All told, the S&P 500 fell 128.61 points to 5,427.13. The Dow dropped 504.22 
to 39,853.87, and the Nasdaq slid 654.94 to 17,342.41.

   In stock markets abroad, indexes slumped across Europe and Asia.

   France's CAC 40 index fell 1.1% as shares of luxury giant LVMH dropped 4.7% 
in Paris after the owner of Louis Vuitton and Dior reported quarterly sales 
that missed expectations.

   ___

   AP Business Writer Matt Ott contributed.

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