S&P and Nasdaq fall to multi-week lows as Tesla, Alphabet weigh
S&P 500, Dow hit multi-week lows
Visa falls after missing revenue growth forecasts
AT&T rises after beating subscriber-addition estimates
Enphase Energy up after results
Indexes down: Dow 0.85%, S&P 1.8%, Nasdaq 3%
Updated at 2.04 p.m. ET/ 1804 GMT
By Lisa Pauline Mattackal and David French
July 24 (Reuters) -The S&P 500 and Nasdaq slumped to multi-week lows on Wednesday after Tesla and Alphabet disappointed with lackluster earnings, prompting investors to question if the Big Tech- and AI-fueled 2024 equity rally was sustainable in the long run.
As the first of the Magnificent Seven stocks reported quarterly numbers, investors had been awaiting new data to see if lofty valuations were justified. With these seven companies having such sway over markets, their performance was bound to have wider repercussions.
The benchmark S&P 500 .SPX touched its lowest since July 1, and the tech-heavy Nasdaq Composite .IXIC fell to a six-week low.
Tesla TSLA.O weighed heavily, slumping 11.2% and set to lose more than $80 billion in market value at current levels from Tuesday's close, if losses hold. The electric-vehicle maker reported its lowest profit margin in more than five years and missed second-quarter earnings estimates.
Google parent Alphabet GOOGL.O shed 4.9% despite a second-quarter earnings beat, as investors focused on an advertising-growth slowdown and the company flagged high capital expenses for the year.
Tesla and Alphabet dragged the S&P 500 Communication Services .SPLRCL and Consumer Discretionary .SPLRCD sector indexes down more than 3.2% each. Information Technology .SPLRCT was the weakest performer of the 11 S&P sectors, tumbling 3.5% to a six-week low.
"There was obviously nothing positive (in the results) and this market requires something to exceed expectations to keep itself going," said Tom Plumb, chief executive and portfolio manager at Plumb Funds.
Alphabet's losses underscored the high earnings bar for the so-called Magnificent Seven, a set of megacap tech stocks that have notched double- and triple-digit percentage gains in 2024, riding on optimism around AI adoption and expectations of an early start to the Federal Reserve's interest-rate cuts.
"I can't help thinking (that) if the tech sector does sneeze, the whole market could catch it," said David Morrison, senior market analyst at Trade Nation.
The other megacaps were also trading lower, with Apple AAPL.O, Microsoft MSFT.O, Amazon.com AMZN.O, Meta Platforms META.O and Nvidia NVDA.O all down between 2.6% and 5.2%.
Meanwhile, the blue-chip Dow .DJI hit a nearly two-week low, with Visa V.N dropping 3.7% after its third-quarter revenue growth fell short of expectations.
At 02:04 p.m. ET, the S&P 500 lost 100.20 points, or 1.80%, to 5,455.54 points, while the Nasdaq lost 539.51 points, or 3.00%, to 17,457.05. The Dow Jones Industrial Average .DJI fell 343.79 points, or 0.85%, to 40,014.30.
Chary of the high valuation of these companies, market participants started shifting to underperforming sectors in mid-July.
S&P 500 stocks, on average, are trading at a 21.4 price-to-earnings ratio, compared with the historical average of 15.9, LSEG data showed. Of the index companies that have reported second-quarter earnings to date, 78.9% have beaten results estimates.
A rotation into smaller-cap stocks has also been eyed, although they did not escape the ripples the megacaps caused: the Russell 2000 .RUT was down 0.5%.
In economic data, S&P Global's flash U.S. Composite PMI Output Index showed business activity climbed to a 27-month high in July.
Among others, AT&T T.N gained 4.9% after beating forecasts for wireless subscriber additions, while solar inverter maker Enphase Energy ENPH.O jumped 13.2% after reporting a second-quarter operating profit beat.
Meanwhile, Roper Technologies ROP.O was set for its worst day in four years, dropping 8.6%, after it signaled third-quarter profit would fall below estimates. Boston Scientific BSX.N traded 0.8% down, despite lifting its 2024 profit target and beating second-quarter earnings estimates.
Tesla's automotive gross margins https://tmsnrt.rs/4c2swJk
Reporting by Ankika Biswas and Lisa Mattackal in Bengaluru and David French in New York; Editing by Varun H K, Pooja Desai and Rod Nickel
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