The market rally faced a key test on Tuesday, as the S&P 500 and Nasdaq composite fell below their 50-day moving averages before recovering some of their losses. Weak China data, bank rating concerns, and earnings-related sell-offs weighed on the market, while weight-loss drug makers Eli Lilly and Novo Nordisk soared on positive news.
S&P 500 and Nasdaq Near 50-Day Lines
The S&P 500 index slid 0.4% on Tuesday, closing just above its 50-day line, which is a key support level for the market rally. The Nasdaq composite also dipped 0.8%, ending slightly below its 50-day line. Both indexes pared their losses significantly from their intraday lows.
The Dow Jones Industrial Average also declined 0.4%, while the small-cap Russell 2000 index dropped 0.6%. The volume was higher than Monday’s on both the NYSE and the Nasdaq, according to preliminary data.
Among the major sectors, energy, financials, and industrials were the biggest losers, while health care and consumer staples were the only gainers. The 10-year Treasury yield fell to 1.34%, while the U.S. crude oil price rose to $82.92 a barrel.
China Data, Bank Ratings, Earnings Drag Market
The market rally was hit by several negative factors on Tuesday, starting with disappointing economic data from China. China’s exports grew by 15.6% year over year in August, missing expectations of 17.1%. China’s imports also rose by 28.1%, below forecasts of 30%. China’s producer price index jumped by 9.5%, the highest since 2008, while its consumer price index rose by only 0.8%, indicating weak domestic demand.
The market rally was also hurt by a Moody’s report that downgraded or put on watch the ratings of several U.S. banks, citing their exposure to leveraged loans and collateralized loan obligations. The banks affected include Wells Fargo (WFC), Bank of America (BAC), Citigroup ©, JPMorgan Chase (JPM), and Goldman Sachs (GS).
The market rally was also dragged down by earnings-related sell-offs in several stocks, especially in the software sector. Datadog (DDOG) plunged 13% after reporting mixed Q2 results and guidance. Other software stocks that fell sharply include MongoDB (MDB), Okta (OKTA), Crowdstrike (CRWD), and ZoomInfo (ZI).
Lilly and Novo Nordisk Shine on Weight-Loss News
On the positive side, the market rally saw some strong gains in the health care sector, especially among weight-loss drug makers Eli Lilly (LLY) and Novo Nordisk (NVO).
Lilly soared 11% to a new high after reporting better-than-expected Q2 earnings and revenue, and raising its full-year guidance. Lilly also announced positive results from a late-stage trial of its experimental drug tirzepatide for obesity treatment. The drug showed an average weight loss of 17.4% in patients after one year of treatment.
Novo Nordisk surged 16% to a record high after revealing that its weight-loss drug Wegovy reduced the risk of major adverse cardiovascular events by 20% in patients with obesity and type 2 diabetes. Wegovy, which is a higher dose of Novo Nordisk’s diabetes drug Ozempic, was approved by the FDA in June for chronic weight management.
Two Big AI Losers Late
After the market close on Tuesday, several companies reported their quarterly earnings, with mixed results.
Super Micro Computer (SMCI) and Upstart Holdings (UPST), both of which are touted as artificial intelligence plays, were among the biggest losers after hours. SMCI stock plunged 10% after missing Q4 revenue estimates and issuing weak Q1 guidance. UPST stock plummeted 20% despite beating Q2 expectations and raising its full-year outlook.
On the other hand, Celsius Holdings (CELH) was one of the biggest winners after hours. CELH stock jumped more than 10%, hitting a new high, after reporting strong Q2 results and announcing a distribution deal with Walmart (WMT).
Other notable earnings movers after hours include Duolingo (DUOL), Akamai Technologies (AKAM), Azek (AZEK), and Rivian (RIVN).
