The Nasdaq Composite dropped deeper into correction territory on Thursday after many large tech firms did not quite live up to investors’ expectations.
Following a 2.4% decline on Wednesday, the Nasdaq Composite is now officially in correction territory, down more than 10% from its high close for the year in July. For the S&P 500, we are now watching 4,100 — a level we think could be tested within the next few weeks. If the index breaks down below 4,100, we can no longer expect that the pullback starting in July was just a benign correction. Instead, we would see it as a renewal of the bear market.
If that happens, the S&P 500 could move at least down to March lows of around 3,800, which would mark about a 9% slide from where the index closed this week.
Wall Street has shown disappointment in the earnings of major tech companies thus far, and looking ahead, Amazon and Apple may face challenges, primarily due to the deteriorating outlook for the US economy. Strong demand from US bond auctions shows that investors are still concerned with all the geopolitical risks that remain on the table.
The market did not get any help from the third-quarter gross domestic product report, which came in much stronger than expected. U.S. GDP grew at a 4.9% annualised clip from July through September.
The third-quarter earnings season is becoming a problem for the stock market. While there are plenty of macro headwinds, the real problem is earnings.
In response to that, Retail traders stepped up selling of single stocks across the broader market. Data shows that retail traders net sold roughly $365 million worth of equities over the past week.
Apple: A long-term bearish signal appeared
Apple shares fell below the 200-day moving average as the broader tech sector continued to fall. The pullback could suggest investors are questioning the long-term trend for Apple stock.
Shares falling below a given 200-day moving average can signal investor losses could push them to sell more stock if the decline continues.
China has been a 20%+ contributor to Apple’s revenues, and competitive risks are increasing.
Amazon: A rising star in a broad tough environment
Amazon significantly exceeded analyst forecasts for revenue and earnings in the third quarter. Revenue surged by 13% during the quarter, indicating that the company is experiencing an upturn following a challenging 2022 marked by high inflation and increasing interest rates.
Tesla: Already in a bear market
Tesla is down around 30% from its 52-week high in July. Analysts across Wall Street reduced their price targets after the electric vehicle maker’s disappointing third-quarter results. It is worth it for retail traders to follow.
Fullerton Markets Research Team
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