Wall Street closed mixed on Wednesday after the broad-based rally of past one and half week halted. The technology sector suffered the most as A.I.-based rally witnessed profit bookings. The Dow ended in positive territory while both the S&P 500 and Nasdaq Composite finished in negative zone.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) gained 0.3% to close at 33,665.02. Notably, 20 components of the 30-stock index ended in positive territory, while 10 in negative zone. The tech-heavy Nasdaq Composite finished at 13,104.89, sliding 1.3% or 171.52 points due to weak performance of large-cap technology stocks.
The major loser of the tech-laded Nasdaq Composite was Datadog Inc. DDOG, shares of which was plummeted by 8.1%. Datadog currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 was down 0.4% to end at 4,267.52. Seven out of 11 broad sectors of the benchmark index closed in positive territory while four in negative zone. The Industrials Select Sector SPDR (XLI), the Energy Sector SPDR (XLE), the Materials Select Sector SPDR (XLB), and the Real Estate Select Sector SPDR (XLRE) advanced 1.6%, 2.7%, 1.2% and 1.8%, respectively. On the other hand, the Technology Select Sector SPDR (XLK) and the Communication Services Select Sector SPDR (XLC) dropped 1.5% and 1.1%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was down 0.1% to 13.94. At intraday low, the fear gauge touched 13.77, lowest level since Feb 14, 2020. Advancers outnumbered decliners on the NYSE by a 1.58-to-1 ratio. On Nasdaq, a 1.27-to-1 ratio favored advancing issues. The S&P 500 recorded 22 new 52-week highs and zero new 52-week lows while the Nasdaq registered 122 new 52-week highs and 40 new 52-week lows.
Technology Sector Suffers Setback
The technology sector has seen an impressive rally so far this year after a highly disappointing 2022. Year to date, the XLK has rallied 33.3% while its close associate XLC has advanced 32.5%. The tech-heavy Nasdaq Composite has climbed 25.4%.
The performance of growth stocks like technology is inversely related to the interest rate trajectory. The technology sector was the best performer in the pandemic-ridden 2020 and 2021 as the Fed kept the benchmark interest rate to almost zero.
Just the opposite happened in 2022 as the central bank hiked the lending rate by a massive 4.5% to combat record-high inflation. The valuation of most of the technology behemoths plunged last year. The situation once again changed in 2023 as the Fed reduced the magnitude of rate hike buoyed by a steady decline in inflation rate.
In the past three months, the tech rally was primarily driven by massive boom in artificial intelligence. Various technology behemoths revealed A.I.-based high-end products. However, a section of financial researchers has recently claimed that the A.I. boom is exaggerated, which resulted in some profit bookings in this sector.
Moreover, yesterday, Bank of Canada unexpectedly hiked the benchmark interest rate by 25 basis points. Previous day, the central bank of Australia also raised interest rate by 25 basis points for two successive months. The CME FedWatch shows that the probability that the Fed will keep the lending rate at 5-5.25% in its June FOMC has reduced to 69% from 77% last week.
U.S. Trade Deficit increased $14 billion to $74.6 billion in April. However, the metric was below the consensus estimate of a deficit of $75.2 billion. The data for March was revised to a deficit of $60.6 billion from a deficit of $64.2 billion reported earlier. April’s exports were $249.0 billion, $9.2 billion less than March exports. April’s imports were $323.6 billion, $4.8 billion more than March imports.
The Fed reported that the consumer credit increased to $23 billion in April, outpacing the consensus estimate of $21.6 billion. The data for march was revised downward to $22.9 billion from $26.5 billion reported earlier. Year over year, consumer credit rose 5.7% in April on a seasonally adjusted basis.
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