Stock Market Today: Wall Street opens in red as tech stocks underperform
- Wall Street’s main indexes opened in negative territory on Wednesday
- US GDP growth for Q4 got revised lower to 3.2%.
- PCE inflation and Jobless Claims data will be released on Thursday.
The Dow Jones Industrial Average (DJIA) is down 0.5% at 38,772.15, the S&P 500 (SPX) loses 0.25% at 5,066.10 and the Nasdaq Composite (IXIC) declines 0.45% at 15,968.73, after the opening bell on Wednesday.
Stock market news
The Energy Sector is up 0.6% as the best-performing S&P 500 major sector in the early trade. The Technology Sector and the Communication Services Sector both lose around 0.6%.
eBay Inc. (EBAY) stock is up more than 7% at $47.50 as the biggest gainer in the S&P 500. On the other hand, UnitedHealth Group Inc. (UNH) is down nearly 5% at $489.20.
Reflecting the cautious market stance, CBOE Volatility Index (VIX), Wall Street’s fear gauge, is up more than 2% at 13.72.
Assessing the latest developments in financial markets, “among equities, there were some modest movements, with the S&P 500 (+0.17%) closing just below its all-time high, having basically been in a narrow band since the Nvidia results last week. Currently it’s down -0.21% for the week, meaning it still needs to recover a bit in order to achieve a joint record of 16 weekly advances in the last 18 (currently on 15/17 for first time since 1989),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:
“Small-cap stocks continued to outperform, with the Russell 2000 up +1.34%, in contrast to the Dow Jones, which was down -0.25%. Tech stocks saw a marginal outperformance, with the NASDAQ up +0.37% and Magnificent 7 up +0.22%. It shows the signs of the times that Apple yesterday announced the closure of its electric car unit which it set up in 2014 that at one point promised autonomous driving within a reasonable timeframe. The fact that they did this partly to divert resources to AI shows how trends can change.”
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
US Q4 GDP growth revised lower, focus shifts to PCE inflation report
The US Bureau of Economic Analysis revised the annualized Gross Domestic Product (GDP) growth of the US in the fourth quarter lower to 3.2% from 3.3% in the initial estimate. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge of inflation, figures will be scrutinized by market participants on Thursday.
The economic calendar will also feature on Thursday weekly Initial Jobless Claims for the week ending February 24, which is forecast to rise to 210,000 from 201,000 in the previous week.
The US Census Bureau reported on Wednesday that Durable Goods Orders declined by 6.1%, or $18 billion, to $276.7 billion in January. This reading followed the 0.3% decrease recorded in December and came in worse than the market expectation for a contraction of 4.5%.
New York Fed President John Williams is scheduled to speak later in the session. Williams said on Friday that he expects the US central bank to start lowering the policy rate in the second half of the year.
According to the CME FedWatch Tool, markets are nearly fully pricing in a no change in the Fed policy rate in March and see an 85% probability of another pause in May.
Salesforce Inc. (CRM), Snowflake Inc.(SNOW) and Monster Beverage Corp. (MNST) are among top companies that will release quarterly earnings reports after the closing bell on Wednesday.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.