Chaos on Asia and US stock markets as investors rush to sell shares in one sort of company

Asian shares have plummeted in morning trading with Tokyo's benchmark losing more than 1,000 points amid pessimism over a nose-dive on Wall Street.

US stock indexes suffered their worst losses since 2022 after profit reports from Tesla and Alphabet helped suck momentum from Wall Street’s frenzy over Artificial Intelligence.

Japan's benchmark Nikkei 225 lost 2.7 percent in early trading to 38,118.49. Australia's S&P/ASX 200 shed 1.1 percent to 7,876.60. South Korea's Kospi declined 1.9 percent to 2,705.41. Hong Kong's Hang Seng declined 1.2 percent to 17,101.45, while the Shanghai Composite fell 0.8 percent to 2,879.78.

Among the region's technology shares, Samsung Electronics fell 2 percent, while Nintendo was down almost 2 percent. Tokyo Electron tumbled nearly 5 percent.

In general, profit expectations are high for US companies, but particularly so for the small group of stocks known as the "Magnificent Seven".

Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla need to keep delivering powerful growth after being responsible for most of the S&P 500’s record run this year.

Anderson Alves at ActivTrades said: "The negative sentiment was exacerbated by disappointing earnings from Google and Tesla, ahead of other key reports from the 'Magnificent Seven' in the upcoming weeks. The tech sector could be under heavy pressure in Asia today."

The recently strengthening yen, which has recovered from trading above 160 Japanese yen to the dollar earlier this month, also works as a negative for some Japanese companies, dominated by exporters. Toyota Motor Corp. shares dropped 2 percent in morning trading, while Sony Group sank 4 percent.

On Wall Street, the S&P 500 tumbled 2.3 percent for its fifth drop in the last six days, closing at 5,427.13. The Dow Jones Industrial Average dropped 1.2 percent to 39,853.87 and the Nasdaq composite skidded 3.6 percent to 17,342.41.

Sam Stovall, Chief Investment Strategist at CFRA, said profit reports from Tesla and Alphabet weren't disastrous, but they raised questions among investors about which other market heavyweights' springtime results could fall short of expectations.

He said: "How many disappointments are we likely to see? Maybe let’s sell first and ask questions later."

Tesla was one of the heaviest weights on the market, tumbling 12.3 percent after reporting a 45 percent drop in profit for the spring. Its earnings fell short of analysts' forecasts.

The company has become one of Wall Street’s most valuable not just because of its electric vehicles but also because of its AI initiatives, such as a robo-taxi.

It's a tough business to assign a value to and the "challenge is that the time frame, and probability of success is not clear", according to UBS analysts led by Joseph Spak.

At Alphabet, investors’ patience with the company’s big AI investments may also be running thinner. Alphabet dropped 5 percent even though it delivered better profit and revenue for the latest quarter than expected.

Analysts pointed to some pockets of weakness, including weaker growth in advertising revenue for YouTube than expected.

The larger challenge for Alphabet may have simply been how much its stock has already rallied, nearly 50 percent in the 12 months to Tuesday (July 23), on expectations for continual growth.

The Russell 2000 index of smaller stocks had leaped at least 1 percent in seven of the last 10 days, but dropped 2.1 percent on Wednesday (July 24).

Smaller stocks had been jumping as Treasury yields eased on expectations inflation is slowing enough for the Federal Reserve to begin lowering its main interest rate in September.

US Treasury yields were mixed on Wednesday after preliminary data suggested business activity in the United States is shrinking in manufacturing, though it continues to grow in services industries.

The overall data suggested a "Goldilocks" scenario, where the economy is not so hot that it puts upward pressure on inflation but not so cold that it veers into a recession.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said some potentially concerning signals were also lying beneath the surface, including heightened uncertainty around November’s elections.

The problem for Wall Street is that even if more stocks were to rise, they’ll need to do so by more than Big Tech stocks are falling because of the group's huge influence.

Nvidia, for example, fell 6.8 percent. That wasn’t as steep as Tesla’s drop, but it was still the single heaviest weight on the S&P 500 because its total market value tops Tesla's. A 1 percent move for Nvidia packs more punch on the index than a 1 percent move for any company other than Microsoft or Apple.