Meituan stock dived on Tuesday amid China's regulatory crackdown on tech companies.
Greg Baker/AFP via Getty ImagesStocks left their record territory in the dust on Tuesday ahead of big tech earnings and as China intensified its crackdown on internet companies and beyond.
Tech stocks led the way down, with the Nasdaq Composite falling 1.2%. The Dow Jones Industrial Average fell 85 points, or 0.25%, and the S&P 500 declined 0.5%. All three indexes closed at records on Monday.
A flight out of stocks and into bonds was also under way. The 10-year Treasury yield fell to 1.24% from 1.29% as investors bid the price higher.
“Today is all about bond yields,” says Jim Paulsen, chief investment strategist at the Leuthold Group. “It’s going to dictate what performs in the stock market now. What do bond investors know that equity investors don’t?”
Big Tech earnings ahead
Tech heavyweights Apple (ticker: AAPL), Microsoft (MSFT), and Alphabet (GOOGL) report earnings this afternoon. Those stocks were all down between 0.9% and 1.6%, after having run up between 6% and 9% in the past month. “There’s a pretty strong consensus sentiment on selling on the news,” says Paulsen.
China extended its regulatory crackdown on companies in the tech sector, with pressure on delivery service Meituan (3690. HongKong) coming from new rules requiring food delivery drivers be paid at least minimum wage. Shares in Meituan dived 18% while other major Chinese tech stocks like Tencent (TME) and Alibaba (BABA) fell more than 5%. Regulatory scrutiny by the Chinese government in the past few weeks has spread beyond technology, with education and property sectors also feeling the heat.
Hong Kong’s Hang Seng tumbled 4.2% after falling 4.1% on Monday. The two-day decline was the largest two-day drop since October 2008. The Shanghai Composite fell 2.5%.
Possible new Covid prevention protocols in the U.S. and weaker-than-expected economic data further damped stocks as the Federal Open Market Committee began its two-day policy meeting.
The Centers for Disease Control and Prevention is expected to announce new guidance that vaccinated people wear masks indoors in certain parts of the U.S., according to news reports. The CDC has scheduled a briefing for 3 p.m. Eastern time.
Any new guidance would come as yet another indication that governments will increase restrictions in the face of the rising wave of Covid-19 cases in the U.S.
Economic data released Tuesday prompted worries that economic growth is slowing. Durable goods orders for June rose 0.8% month over month, missing expectations for a 2.1% rise and lower than the last reading of 3.2% growth. The Case-Shiller Home Price Index rose 17% year over year, beating estimates of 16.4%.
The July meeting of the FOMC—the monetary policy body of the U.S. central bank—started Tuesday; an announcement due Wednesday on the meeting will be closely watched by investors.
Tesla (TSLA) stock slipped 2% after the electric vehicle pioneer reported a profit of $1.45 a share, beating estimates of 98 cents a share, on sales of $11.96 billion, above expectations for $11.3 billion.
General Electric (GE) stock rose 1.4% after the conglomerate reported a profit of 5 cents a share, beating estimates of 3 cents a share, on sales of $18.3 billion, above expectations for $18.1 billion.
3M Co. (MMM) stock fell 0.55% after the company reported a profit of $2.59 a share, beating estimates of $2.28 a share, on sales of $8.9 billion, above expectations for $8.5 billion.
Cummins (CMI) stock slipped 1.2% after getting upgraded to Buy from Hold on Vertical Research.
JD.com (JD) stock fell 2% after getting downgraded to Sell from Buy at DZ Bank.
Corrections & Amplifications: Durable goods orders for June rose 0.8% month over month, missing expectations for a 2.1% rise and lower than the last reading of 3.2% growth. An earlier version of this article incorrectly said durable goods orders fell 0.8% in June.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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Tech Stocks Got Crushed Ahead of Major Earnings - Barron's
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