Title: Fitch Downgrade Triggers Shift in Market Sentiment, Tech Stocks Take a Hit
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The recent Fitch downgrade has prompted some investors to take profits, although market analysts believe this adjustment was already expected due to the strong performance of the market in recent months. Mona Mahajan, senior investment strategist at Edward Jones, stated, “Investors may use this Fitch downgrade as a reason to take some profits, but we think that was probably a natural part of the market cycle anyway, after such a strong run, very little volatility. Broadly speaking, this hasn’t deterred our fundamental view of the economy or markets.”
While the Fitch downgrade has caused some temporary market fluctuations, Mahajan emphasized that the current economic outlook remains resilient, and the conditions are vastly different compared to the last U.S. credit downgrade.
Wednesday witnessed a selloff in the market, interrupting the months-long uptrend fueled by growth stocks. Technology stocks particularly faced declines as the 10-year Treasury yield reached its highest level since November. Chinese tech giants JD.com and Baidu fell over 4% following China’s proposal to limit smartphone use for minors. Alibaba also experienced a 5% drop. Additionally, mega-cap companies such as Amazon, Alphabet, and Microsoft saw declines of more than 2%, while Nvidia’s stock dropped nearly 5%.
Jay Woods, chief global strategist at Freedom Capital Markets, referred to Wednesday’s movement out of technology stocks and into defensive sectors as a long overdue “constructive rotation” after the tech-fueled rally. He reassured investors, stating, “There is money still being put to work. There’s no rush to the exits right now. It’s just a headline that’s given us fuel to finally move some chips around a little bit without upsetting the general overall trends, which have been up since the beginning of the year when it comes to tech.”
Simultaneously, Wall Street was closely monitoring the latest earnings results. CVS Health shares rose by 3.3% after reporting strong earnings, with the company successfully trimming costs. Healthcare company Humana also gained 5.6% following lower-than-expected medical costs. However, chipmaker Advanced Micro Devices (AMD) experienced a 7% decline after issuing a disappointing forecast, causing other chip stocks to follow suit. Additionally, SolarEdge Technologies tumbled 18.4% after failing to meet revenue expectations.
Despite these individual setbacks, the overall earnings season continues to surpass expectations. According to FactSet data, approximately 82% of S&P 500 companies that have reported their earnings posted positive surprises.
In conclusion, the Fitch downgrade triggered a shift in market sentiment, leading to a brief sell-off and a decline in technology stocks. However, analysts remain optimistic about the resilience of the economy and the existing market conditions. As earnings season progresses, companies’ results continue to outperform expectations, providing further support to market sentiment.
— CNBC’s Darla Mercado contributed to this report.