Doubts on AI and Consumer Spending Halt Stock Market Surge

By Thea Felicity

Jul 28, 2024 10:43 AM EDT

Traders work on the floor of the New York Stock Exchange (NYSE) on July 24, 2024 in New York City. The Dow closed down over 500 points on Wednesday after disappointing earning results from Tesla and Google parent Alphabet.
(Photo : Spencer Platt/Getty Images)

The latest earnings reports shared by Bloomberg are raising concerns in the US stock market, fueling worries that the enthusiasm for artificial intelligence has peaked and that consumer spending may soon falter.

While overall profits are growing at a solid rate and banks continue to see robust earnings, these issues have interrupted a stock-market rally that had been driving major indexes to new record highs until this month. The Nasdaq 100 Index experienced a 2.6% drop in its third consecutive weekly loss, triggered by Alphabet Inc.'s results, which heightened apprehension about the timeline for AI investments to yield returns.

Meanwhile, earnings updates from Southwest Airlines Co., United Parcel Service Inc., and Whirlpool Corp. have added to fears of a potential consumer spending slowdown.

Now, the upcoming earnings reports from major tech companies like Microsoft, Meta, Amazon, and Apple are highly anticipated, and there is a lot of pressure on these companies to perform well.

Concerns on Tech Stocks

Last week, VCPost reported that there was a more positive outlook due to hopes for a smooth economic recovery or soft economic landing and enthusiasm around artificial intelligence, which helped the S&P 500 reach 38 record highs.

However, the current sentiment has shifted, and there is more concern and caution among investors.

Specifically, the market's big gains this year have made some investors nervous, especially large tech companies. Alphabet, Microsoft, Meta, and Amazon, which have all spent a lot of money on AI technology.

Google's parent company, Alphabet, reported better-than-expected sales and cloud revenue, but its capital spending of $13.2 billion in the second quarter was higher than Wall Street expected, raising concerns about the lack of immediate AI profits.

Analyst reported that early earnings reports from major US retailers show that consumers, especially those with lower incomes, are still struggling with high interest rates and inflation.