Stocks dropped today due to troubling China data and concerns about bank ratings.

Stocks dropped today due to troubling China data and concerns about bank ratings.

A Recap of a Turbulent Day on Wall Street

On Tuesday, the stock market took a beating as concerns over China’s economy and potential credit rating downgrades for U.S. banks weighed heavily on investor sentiment. It was a day of red for most stocks, but the healthcare sector managed to perform relatively well due to some notable movers.

China released disappointing trade data overnight, with exports falling 14.5% and imports dropping 12.4% year-over-year in July. Craig Erlam, a senior market analyst at OANDA, pointed out that these numbers reflect both sluggish domestic and external demand. It’s clear that China’s economy is in need of a boost, but Erlam believes that the measures authorities will take might not inspire investor or household confidence.

In addition to the concerns over China’s economy, Moody’s Investors Services delivered another blow to the market by downgrading the credit ratings of several regional lenders, including Pinnacle Financial Partners and M&T Bank. The ratings agency also announced that it is reviewing the ratings of larger U.S. banks such as Bank of New York Mellon and State Street. The news sent shockwaves through the financial sector, with Goldman Sachs and JPMorgan Chase being hit particularly hard.

Jose Torres, a senior ANBLE at Interactive Brokers, expressed renewed concerns about potential bank failures and consolidations in light of these developments. He also noted that investors are anxiously trying to determine whether the Federal Reserve will continue to raise interest rates. The upcoming release of the Consumer Price Index (CPI) data on Thursday is expected to play a significant role in shaping investor sentiment and the outlook for monetary policy.

Amidst all the turbulence, there were some positive earnings reports to consider. Eli Lilly, a pharmaceutical company, reported higher-than-expected second-quarter earnings and beat revenue estimates thanks to strong sales of its diabetes drug Mounjaro. This news, combined with Novo Nordisk’s announcement that its obesity drug Wegovy reduced the risk of heart attacks by 20% in a trial, caused both stocks to rally. Analyst Geoff Meacham from BofA Securities sees this data as removing an “overhang” for the obesity treatment landscape and boosting confidence in the commercial opportunity for Eli Lilly.

However, not all companies had a good day. Beyond Meat, a plant-based protein maker, saw its stock plunge after reporting earnings. Despite a narrower loss than expected, the company’s revenue was down 30% year-over-year and fell short of estimates. Beyond Meat also provided lower-than-anticipated full-year revenue guidance.

By the end of the day, the major indexes had recovered somewhat from their intraday lows but still closed in negative territory. The Dow Jones Industrial Average declined 0.5% to 35,314, the S&P 500 shed 0.4% to 4,499, and the tech-heavy Nasdaq Composite fell 0.8% to 13,884.

Overall, it was a rough day for Wall Street as concerns spread from China’s economy to potential bank downgrades and uncertainty about ongoing interest rate hikes. Nevertheless, there were positive developments in the healthcare sector, thanks to strong earnings reports and promising drug trial results. As investors await the upcoming CPI data, they will be closely watching its impact on market sentiment and the Federal Reserve’s future decisions.