Stock market losses grew at midday Wednesday as a downgrade of U.S. government debt and strong jobs data and earnings reports rattled bulls' confidence.
The Nasdaq composite led losses with a 2.3% drop at midday. The composite is now slightly below its 21-day exponential moving average and the 14,000 level.
The S&P 500 gapped down 1.3% as it also tests the 21-day line and the 4500 level. The Dow Jones Industrial Average lost 0.7%. The small-cap Russell 2000 was off 1.5%.
Volume rose on the Nasdaq and NYSE compared with the same time on Tuesday.
The Innovator IBD 50 ETF fell 3.2%, as half of its stocks fell 3% or more.
Dynatrace gapped below its 50-day moving average in a 13% sell-off despite a better-than-expected June quarter. CrowdStrike fell back below the 162.25 buy point of Tuesday's breakout as shares slid 7.5%.
ELF Beauty offset some of the IBD 50's loss as it soared 15% to a record high. The cosmetics products company sailed past June-quarter expectations and raised its full-year outlook.
Among major stocks, Microsoft dipped below its 50-day moving average, and Alphabet is back near its 127.10 buy point.
Fitch Downgrade Hits Stock Market
In an unpleasant surprise for the stock market, Fitch Ratings late Tuesday downgraded U.S. long-term debt from a best-possible AAA to AA+ with a stable outlook.
"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters," the rating agency said in announcing its decision. "The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."
Fitch also cited concerns about ballooning government deficits. It expects government deficits to rise to 6.3% of GDP in 2023, from 3.7% in 2022. That reflects weaker federal revenues, new spending initiatives and a higher interest burden. State and local governments are expected to run an overall deficit of 0.6% of GDP this year after running a small surplus of 0.2% of GDP in 2022.
It was the first Fitch downgrade of U.S. debt since Aug. 5, 2011, according to Dow Jones Market Data. The S&P 500 fell 6.7% the next day, which makes today's stock market reaction much more tolerable. Still, investors should be more guarded with risk-off now the predominant theme.
Earlier Wednesday, the ADP Employment Survey showed the job market was still firm. July payrolls of 324,000 fell from 455,000 in June, but it was well above forecasts for 185,000, according to FactSet. That doesn't show a weakening job market like the one the Fed might prefer.
The benchmark 10-year Treasury yield rose 6 basis points to 4.11%. It's been above the 4% level three of the past five days. It is at the highest since Nov. 9, 2022.
U.S. crude oil fell 2.5% to $79.34 a barrel. That's despite the fact that the Energy Information Administration reported a drop in inventories of 17 million barrels from the previous week.
Earnings Movers In Today's Stock Market
Technology and health care companies were among the big earnings movers this morning.
Advanced Micro Devices reversed to a loss of 6.9% even after the chip company late Tuesday beat Q2 expectations. AMD cited growing sales of chips for artificial intelligence. The stock is meeting resistance at its 50-day moving average as it forms a base-on-base formation.
Cardlytics vaulted 21% in huge volume, gapping to the highest level in nearly a year. The purchase analytics company beat Q2 expectations.
But Dynatrace, another tech leader, sold off 13% at midday in heavy volume, piercing its 50-day moving average.
Humana gapped above its downward-trending 50-day moving average. The managed care provider topped second-quarter estimates and raised its estimate of Medicare Advantage membership.
CVS Health reversed higher by 3.6%. The operator of CVS drugstores and Aetna managed care topped sales and profit views. It cut its GAAP EPS guidance but maintained adjusted EPS guidance of $8.50 to $8.70.
Restaurant Results Mixed
In the restaurant industry, Starbucks also reversed higher, up 2.7% at midday. The company gave a mixed June-quarter report late Tuesday.
Yum Brands — which owns Taco Bell, KFC and Pizza Hut — erased early losses and was up nearly 1% at midday. Wingstop reversed higher and is trying to reclaim its 200-day moving average. The company beat Q2 views and raised its same-store sales and store expansion forecasts.
