NEW YORK (AP) — Wall Street is again feeling the downside of hitching so hard onto a handful of meteoric Big Tech stocks. The market’s most influential companies are leading a broad slide in stock indexes Thursday afternoon.
The S&P 500 was 0.7% lower in afternoon trading, with technology sector stocks the biggest drag on the benchmark index. The Nasdaq composite, which is stuffed with big technology stocks, dropped 0.9%, extending its losses following its worst day since 2022. The Dow Jones Industrial Average was down 378 points, or 0.9%, as of 2:02 p.m. Eastern time.
The heaviest weights on the market included drops of 1.8% for Apple, 1.4% for Microsoft and 2.3% for Amazon. These and a handful of other mega-sized tech-oriented stocks had been screaming higher, almost regardless of what the economy or interest rates were doing, in large part because of a frenzy around artificial-intelligence technology. Nvidia, which has soared more than 140% this year, has been the phenomenon's poster child.
Such momentum for a small group of stocks that came to be known as the "Magnificent Seven" helped prop up the rest of the U.S. stock market and drive it to records early this year, even when other companies were struggling under the weight of high interest rates.
Now, critics say the Magnificent Seven's stock prices look too pricey. And over the last week, a shift has gotten underway on Wall Street. Instead of piling into just Big Tech, investors have been moving toward smaller stocks, companies whose profits are closely tied to the economy's strength and other areas that have been unloved for a while. The momentum kicked into a high gear after an encouraging report last week on inflation raised expectations for the Federal Reserve to begin easing interest rates in September.
Stocks of smaller companies have been particularly strong, and the Russell 2000 index has rallied at least 1% in five of the six prior days, though it flipped from an early gain to a loss of 1.4% on Thursday. After lagging badly behind the big stocks in the S&P 500, the smaller stocks in the Russell 2000 have jumped nearly 8% this month, more than quadruple the gain of their larger rivals.
Market watchers call such a shift an encouraging signal, because a market with many stocks rising is seen as healthier than one that's climbing because of the dominance of its top 1%.
Besides hopes for coming cuts to the Fed's main interest rate, which has been sitting at its highest level in more than two decades, expectations for stronger profit growth from U.S. companies have also helped to drive stocks.
D.R. Horton jumped 10.6% after the homebuilder reported stronger profit and revenue for the spring than analysts expected. Other homebuilders also jumped to some of the biggest gains in the S&P 500, including a 3.5% climb for Lennar and a 3.1% rise for PulteGroup.
United Airlines rose 1% after swinging between earlier gains and losses following its better-than-expected profit report. The airline said conditions may be difficult for the industry given a glut of available flights until the middle of August.
Domino’s Pizza dropped 13.8% despite topping analysts’ expectations for profit. The pizza chain temporarily suspended its forecast for how many stores will open globally over the long term. While that’s likely due to reasons beyond the company’s control, analysts said it could frustrate investors.
Chuy’s soared 47.8% after Darden Restaurants said it would buy the Tex-Mex chain in an all-cash deal valuing it at $605 million. Shares of Darden, which owns Olive Garden, LongHorn Steakhouse and a suite of other chains, fell 2.9%.
In the bond market, Treasury yields swung following some mixed data on the economy but remained close to where they were the night before.
One report said more workers applied for unemployment benefits last week than economists expected. That could be a signal of a softening job market, though the number remains low compared with history.
A separate report said manufacturing in the mid-Atlantic region is growing much better than economists thought.
The yield on the 10-year Treasury edged up to 4.18% from 4.16% late Wednesday.
Wall Street is hoping for the economy to remain in a “Goldilocks” state, where it’s not so hot that it puts upward pressure on inflation but not so cold that it slides into a recession.
In stock markets abroad, European indexes were mixed after the European Central Bank held its main interest rate steady. Asian indexes were also mixed.
___
AP Business Writers Yuri Kageyama and Matt Ott contributed.
