ASX hits two-week low after Wall Street suffers worst day since 2022

Macquarie was down 3.4 per cent after telling investors at its AGM that they have made a lower return on their funds this year than in the previous five years amid weaker demand for its services.

Among local tech stocks that declined, software business Xero was down 3.5 per cent and WiseTech shed 3.2 per cent.

The lowdown

IG Australia market analyst Tony Sycamore said the ASX fell to a two-week low on Thursday.

“Trouble on Wall Street spread like wildfire across regional equity markets,” he said, with the rapid deterioration in risk sentiment sparked by underwhelming earnings reports from tech giants Tesla and Alphabet in the US. “Regional equity markets are confronting other issues much closer to home – a worrying slowdown in China and the looming threat of Trump’s tariffs, which would cause a sharper slowdown in the Chinese economy.”

The slide in the local market comes after US stock indexes on Wednesday posted their worst losses since 2022 after Tesla and Alphabet’s results helped suck momentum from Wall Street’s frenzy around artificial-intelligence technology.

Overnight, the S&P 500 tumbled 2.3 per cent for its fifth drop in the last six days. The Dow Jones dropped 1.2 per cent, and the Nasdaq Composite skidded 3.6 per cent.

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 per cent after reporting a 45 per cent 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.”

Profit expectations are high for US 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.

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. 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 per cent in seven of the last 10 days, though its momentum also slammed into a wall. It dropped 2.1 per cent 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 on Wednesday after preliminary data suggested US 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.

In other international stock markets, indexes slumped across Europe and Asia. France’s CAC 40 index fell 1.1 per cent as shares of luxury giant LVMH dropped 4.7 per cent in Paris after the owner of Louis Vuitton and Dior reported quarterly sales that missed expectations.

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“Initially, that investment is not going to be financially returning unless governments step up to support those investments,” Macquarie chief executive Shemara Wikramanayake said of green hydrogen investments as she affirmed change in countries’ climate policies wouldn’t derail the longer-term green energy transition.

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Mining giant Fortescue says it will lift spending on green energy technology over the next year and has reaffirmed its commitment to developing zero-emissions hydrogen despite scaling back ambitions to produce 15 million tonnes of the fuel a year by 2030.

AP

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