Tesla earnings shoot a warning shot and stocks fall.

UK stocks were trading at their lowest levels in three weeks on Wednesday as investors digested a wave of disappointing corporate earnings from Wall Street the previous Eveningand awaited a flurry of economic data.

The FTSE 100 held it's ground a little v's the tech arena.

Tesla shares fell sharply after the electric carmaker said net profits fell 45% in the second quarter, while Google parent Alphabet disappointed with slowing ad sales growth.

Visa, UPS and GM also underwhelmed investors with their latest numbers over the past 24 hours, with the three Wall Street benchmarks showing a sea of red.

The Dow was down, the S&P 500 down -2.2% and the Nasdaq plummeted to -3.6%.

After a relatively quiet economic calendar so far this week, the schedule picked up on Wednesday with a host of purchasing managers' indices.

British business activity picked up this month after a lull in the run-up to a July 4 election, bolstered by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023, a major survey showed on Wednesday.

The Eurozone Manufacturing PMI dropped to 45.6 in June 2024, hitting a six-month low after falling from 47.3 in May, according to preliminary estimates. This marks the 15th consecutive month of declining manufacturing output, driven by decreases in new orders, export orders, and employment.

In stocks Reckitt Benckiser was a high riser, gaining 4% on plans to slim down its portfolio to focus on core businesses and offloading several home care brands. The Durex and Dettol maker said it would look to sell brands including Air Wick, Mortein, Calgon and Cillit Bang. Its Mead Johnson Nutrition business, which makes Enfamil and Nutramigen, is now also up for sale.

Also impressing the market was easyJet's third-quarter results which showed a big increase in profits driven by an 8% rise in passenger numbers and a 1% rise in revenue per seat. The FTSE 100 low-cost carrier said easyJet holidays saw 49% growth in profit before tax to £73m, with a 33% increase in passenger numbers.

Gold and silver miner Fresnillo rose after saying it was on track to meet full-year guidance after strong second-quarter production. The Mexico-based company said quarterly attributable silver production of rose 8.4% quarter on quarter to 14.6 million ounces, but gold production was down 7.7% to 130,000 ounces.

Financial stocks were leading the downside, with Scottish Mortgage Inv Trust, Experian, Prudential, 3i Group, Standard Chartered, NatWest and Beazley all among the top 10 fallers list.

In Europe LVMH and Deutsche Bank AG, also fuelled concern about the health of global business as the reporting season kicks into overdrive.

Deutsche Bank dropped on its first quarterly loss in four years and scrapped plans for a buyback. LVMH tumbled 6.5% after sales in China plummeted during the quarter, adding evidence that an economic slowdown is hurting European companies.

Analysts are poring over this week’s raft of earnings as they hunt for signs that the tech-driven rally of the first half of the year has longer to run. The market is facing pressure into the summer months, with volatility also likely to be heightened by uncertainty as the US presidential race gathers pace.

“What we’re seeing during this earnings season is the growing gap between the rather optimistic profit consensus from analysts and slowing economic growth,” said Benoit Peloille, chief investment officer at Natixis Wealth Management. “With unemployment now on the rise, earnings disappointment is to be expected and that’s what we’re seeing this season. This is true for the US and to some extent for Europe.”

So far, about a fifth of S&P 500 companies have reported results. Analyst estimates slid ahead of the season as they usually do, but market strategists including Morgan Stanley’s Michael Wilson and Barclays’ Emmanuel Cau have warned that the downgrades have been milder on this occasion, setting the bar for positive surprises higher. Investors appear particularly worried about sales, with less than half of companies beating expectations.

Hopes for the so-called Magnificent Seven, comprising Tesla, Alphabet, Apple, Amazon, Meta, Microsoft and Nvidia, are lofty. Analysts project profits at these companies to have jumped 30% in the second quarter, compared with a 10% increase for the S&P 500 as a whole, according to data compiled by Bloomberg Intelligence.

Alphabet shares also fell after a report on Tuesday showed the Google parent sunk more resources into its drive to outmatch rivals in artificial intelligence, fueling spending higher than analysts expected. Capital spending rose to $13.2 billion in the second quarter, the company said.

“Mixed earnings, alongside softening activity data and high political uncertainty, keep markets on edge,” said Barclays’ Cau.

The Japanese yen strengthened past 155 per dollar for the first time since early June as traders repositioned for the possibility the central bank will raise interest rates in coming months, if not at next week’s policy meeting.

Oil rose, snapping a run of losses, after an industry report indicated that US crude inventories fell for a fourth week.

As the week progresses, the big question is: Where does tech go from here?

Investors are finally waking up to all of the AI spend and realising it's much more of an expense right now rather than a revenue generator.

The active strategies on TPP have been projecting a sell off for quite some time in US tech, possibly longer than we would all like, but are they beginning to be proven right?

Right now the market is not impressed with the start of the earnings season for US tech. After driving the rally for much of 2024, they're getting slammed into a wall right now.

As well as earnings being a problem for tech, they're also caught in a rotation cycle from tech to value.

Despite these recent pullbacks, the S&P and Nasdaq are still positive by 15% on the year, so there is a lot of potential downside if they do continue to fall.

It could be very interesting times ahead.

‍