The S&P 500 fell Tuesday, dragged lower by declines in megacap tech stocks, as investors braced for quarterly reports from names in that cohort. Traders also set their eyes on Washington as the Federal Reserve began its latest policy meeting.

The broad market index lost 0.5% and ended the day at 5,436.44, while the Nasdaq Composite tumbled 1.28% to close at 17,147.42. The Dow Jones Industrial Average climbed 203.40 points, or 0.5%, to 40,743.33.

Nvidia shares pulled back by 7%, while Microsoft shed about 0.9%. Tech-related giants Amazon, Netflix and Meta Platforms also declined.

It is a big earnings week for megacap tech names. Microsoft is set to report after the bell Tuesday. Meta, Amazon and Apple are on deck for later this week.

The earnings season has been a solid one thus far. Of the 240 S&P 500 names that have reported, about 80% have beaten earnings expectations, according to data from FactSet.

"We are seeing a broadening in earnings growth," said Mona Mahajan, Edward Jones principal and senior investment strategist. "We do think that with tech earnings, the bar is high. If we get any whiffs of a cooling in [artificial intelligence] spending, we could see the stocks pull back a bit. But we've already gone through a decent correction."

Mahajan added that the soft landing narrative remains intact, in her view, and that a potential rate cut from central bankers coupled with moderating inflation could lend to a strong backdrop for a continued broadening of the market as traders look to areas outside of megacap technology.

Fed meeting

The Fed's two-day policy meeting began Tuesday, with investors hoping Chair Jerome Powell will signal the timing and number of rate cuts expected in the next few months. Traders have priced in a 100% chance for a September rate reduction, according to the CME FedWatch Tool.

"Inflation is trending lower, supporting Federal Reserve rate cuts," said Seema Shah, chief global strategist at Principal Asset Management. "This, coupled with a still robust economic outlook and strong corporate earnings, should bolster risk assets and lead to a broadening of returns away from just technology."

CrowdStrike shares fell 9.7% after CNBC reported that Delta Air Lines hired attorney David Boies to seek damages from the cybersecurity company and Microsoft after an outage this month led to thousands of flight cancellations. Shares of CrowdStrike are down nearly 40% in July, on pace for their worst monthly performance ever.

Merck shares dropped 9.8% as weaker-than-expected guidance for the full year overshadowed a strong second-quarter report. Procter & Gamble lost 4.8% after its quarterly revenue fell short of Wall Street's estimates due to disappointing demand in China.

Dow ends Tuesday higher as S&P 500 and Nasdaq slide

The 30-stock Dow closed higher on Tuesday, while the Nasdaq Composite saw a steep decline as investors anticipated further key tech earnings due this week.

The S&P 500 lost 0.5% to end at 5,436.44, while the Nasdaq slid 1.28% to close at 17,147.42. The Dow Jones Industrial Average added 203.40 points, or 0.5%, to finish at 40,743.33.

— Pia Singh

'Reversal of the reversion' has started, says BTIG

The small-cap iShares Russell 2000 ETF and Invesco QQQ Trust ratio recently reached a daily relative strength index, or RSI, value of 77, the highest level since 2017, according to BTIG.

"We think a 'reversal of the reversion' we have seen is likely in the near-term," Jonathan Krinsky, chief market technician, wrote in a Monday note.

The small-cap exchange-traded fund has fallen roughly 80 basis points. On the other hand, the QQQ has gained approximately 80 basis points, marking a start to the 'reversal of the revision,' he added.

"Our sense is this pair (IWM/QQQ) can give back ~50% of the recent move. If that's the case, there is another 6-8% to go here," said Krinsky.

— Hakyung Kim

Companies beating their earnings estimates will continue to outperform, Wolfe Research says

As of last Friday, 207 companies have reported their second-quarter results for 2024. But this year, companies that have beaten their earnings expectations have been rewarded with outsized price actions, according to Wolfe Research.

"Companies that are beating results on both the top- and bottom-lines this quarter are seeing outsized responses in terms of relative price action compared to prior quarters," the firm wrote in a Tuesday note. "Our sense is that companies that have beaten estimates on the top- and bottom-lines over the past two quarters with positive relative price action surrounding their reports will likely outperform their peers in the months ahead."

— Lisa Kailai Han

The rotation has 'largely run its course,' Barclays says

The "Great Rotation" is about to come to an end, according to Barclays.

Small caps have rallied this month as investors pivoted into the interest rate-sensitive asset class, dumping tech stocks after their runup this year. The small-cap Russell 2000 is higher by 9% this month, while the S&P 500 is flat.

But Barclays' Ajay Rajadhyaksha expects that outperformance will not continue for much longer now that small caps have largely closed the gap with large caps. Not only are their fundamentals weaker, but they also have higher debt and lower earnings growth forecasts, he said.

"We think this rotation has largely run its course, and do not expect it to continue this week," Rajadhyaksha wrote Monday.

— Sarah Min

Tech bellwethers such as Nvidia in a bear market, based on declines from their recent highs

A host of technology bellwethers — especially those caught up in the artificial intelligence mania — have suddenly fallen into bear markets (down 20% or more), at least as measured by their current prices against their 52-week highs.

Super Micro Computer: Lower by 46% since its last 52-week high on March 8

Arm Holdings: Off by 30% just since July 9

Qualcomm: More than 26% lower since June 18

Nvidia: Down 25% from its last high on June 20

Lam Research: Off 23.5% since its July 11 high

— Scott Schnipper

Beware the ides of late-summer stock markets, Deutsche Bank warns

Late summer has recently proven an often treacherous time for investors, according to Deutsche Bank macro strategist Henry Allen in a note out Tuesday. The third quarter, from July through September, "and the late-summer period is often a difficult time for markets. In fact, the average spike in the VIX index has been higher in Q3 than any other quarter," he wrote.

Allen ran through five examples of late summer sell-offs just since 2007.

• 2007 — The first, nascent signs of the Global Financial Crisis emerged, and the S&P 500 sank more than 9% between July 19 and Aug. 15.
• 2008 — The crisis became critical as Lehman Brothers failed in mid-September, and the S&P 500 tumbled 9.1% in September and 8.8% on a single day in late September when Congress blocked a rescue package.
• 2011 — The S&P 500 dropped 5.7% in August and another 7.2% in September, capping a five-month slide, thanks to a U.S. debt ceiling crisis and financial tumult in the Euro region.
• 2015 — Greece's sovereign debt crisis and a market slump in China helped drive down the S&P 500 by 6.2% in August and 2.6% in September.
• 2022 — The S&P fell 4.1% in August and 9.3% in September as the Federal Reserve amped up "hawkish rhetoric" and European natural gas prices soared in the wake of Russia's invasion of Ukraine.

— Scott Schnipper

U.S. crude oil falls below $75 per barrel, lowest level since early June

U.S. crude oil futures on Tuesday fell to their lowest levels since early June as worries about China's economy overshadowed a new round of escalation in the Middle East.

West Texas Intermediate fell 1.42% to settle at $74.73 per barrel, while Brent dropped 1.44% to settle at $78.63 per barrel.

"China demand destruction has pulled the rug out from under the Crude Oil market in recent days, with authorities rolling out several initiatives in recent days that seemed haphazard, and not the golden bullet the market is looking for," Bob Yawger, executive director of energy futures at Mizuho Securities, said in a note to clients on Tuesday.

— Spencer Kimball

Ether ETF flows are net negative so far, according to JPMorgan

The new ether exchange-traded funds saw net negative flows during their first week on the market, according to JPMorgan.

The investment firm said in a note to clients Tuesday that the net flows to the funds so far is $440.3 million. The negative number is primarily due to the $1.7 billion that has left the Grayscale Ethereum ETF (ETHE), which has the highest management fee of the group after being converted from a private trust. It is not clear how much of these outflows have migrated to a different ether fund.

Excluding that Grayscale product, the funds have attracted roughly $1.3 billion, including nearly $500 million for BlackRock's fund — ticker ETHA — and $169 million for Grayscale's cheaper "mini" fund, which trades under the ticket ETH.

"Volumes also hit their lowest level since launch with yesterday's ~$773mn notional trading volume down ~30% from the group's debut strength of >$1,100mn. We estimate the total average daily trading volume is ~$970mn/day so far (which we expect to decrease over time) and ETHE has retained its >50% share of all trading over the past few days," JPMorgan analyst Kenneth Worthington said in the note.

— Jesse Pound

AI spending is in focus in a 'make-or-break' week for Big Tech

Tuesday's earnings results from Microsoft usher in a critical week for major technology stocks as Wall Street hunts for clues that hefty artificial intelligence investments are beginning to show a payoff.

Meta Platforms, Amazon and Apple follow later in the week with earnings reports.

Read more on what Wall Street is keeping an eye on in this "make or break" period for the group.

— Samantha Subin

Deutsche Bank trims price target on McDonald's

Deutsche Bank trimmed its price target on shares of McDonald's to $290 from $295 following a disappointing second-quarter print.

"We believe this quarter could be a clearing event to improve sentiment as numbers have now been reset lower, it appears MCD has a more defined action plan to drive improvement," wrote analyst Lauren Silberman.

The price change comes a day after the fast-food giant missed quarterly earnings and revenue estimates and reported a decline in same-store sales as consumers ease spending.

The new price target implies about 11% upside from Monday's close. The analyst retained her buy rating on the stock, reiterating the firm's conviction in McDonald's global strength and value leadership. Shares have slumped roughly 11% this year.

The firm sees "limited downside risk to numbers from here and given current valuation, believe MCD offers a favorable risk/reward profile," she added.

— Samantha Subin

Merck poised for worst session since 2021 following soft outlook

Merck headed for its worst day since 2021 on Tuesday as weak guidance spooked investors.

Shares of the pharmaceutical stock dropped around 9.4% in midday trading. That would mark the stock's worst day since November 2021, when it tumbled close to 10% in one session.

Tuesday's sell-off comes after the company delivered a full-year outlook that was softer than Wall Street anticipated. Merck forecast full-year earnings between $7.94 and $8.04 per share, under the consensus estimate of $8.16 from analysts polled by FactSet.

That overshadowed stronger-than-expected earnings for the second quarter.

Merck is now up about 6% in 2024.

— Alex Harring

CrowdStrike on pace for worst month ever

CrowdStrike's 11% slide on Tuesday brought the cybersecurity stock's month-to-date losses to a whopping 40%. That would mark its biggest one-month loss on record.

The stock's most-recent decline comes after CNBC reported that Delta Air Lines hired attorney David Boies to seek damages from CrowdStrike following the historic IT outage that affected numerous industries, including airlines.

— Fred Imbert

Dollar General still a buy, says Goldman Sachs

Goldman Sachs is staying bullish on Dollar General as spending trends of lower-income consumers increasingly come into focus.

Analysts led by Kate McShane reiterated their buy rating on the discount retailer in a note on Monday. Goldman argues that consumer sentiment toward the company and cash flow trends inside Dollar General are improving.

Shares rose nearly 2% Tuesday afternoon.

For more on Goldman's call, click here.

— Hakyung Kim

Solomon, Sternlicht see Fed starting to lower rates

Two leading Wall Street CEOs told CNBC on Tuesday that they expect the Federal Reserve to start cutting interest rates soon.

"If they don't cut tomorrow … then they'll cut in September," Starwood Capital Group Chair Barry Sternlicht said from the Paris Olympics. Sternlicht faulted the Fed for using outdated rent inflation data as justification for not reducing rates sooner.

Goldman Sachs CEO David Solomon also said he expects monetary policy easing to happen soon.

"One or two cuts in the fall seems more likely. I guess there will be some messaging around that," said Solomon, who also was interviewed on CNBC's "Squawk Box" from the Olympics. "The direction of travel is relatively clear."

— Jeff Cox

Stocks making the biggest moves midday

Here are the stocks on the move midday:

• JetBlue — The airline soared almost 20% after reporting second-quarter earnings that beat analysts' expectations. The New York City-based carrier posted adjusted earnings of 8 cents per share, excluding one-time items, compared to analysts' estimated loss of 11 cents per share, according to LSEG. Revenue came in at $2.43 billion, also above the analyst estimate of $2.4 billion.
• Sprouts Farmers Market — Shares surged about 15%, hitting a new 52-week high, after the food retailer's latest earnings of 94 cents per share on revenue of $1.89 billion topped analysts' consensus estimates of 78 cents in earnings per share on $1.84 billion in revenue, according to LSEG. The Phoenix-based grocery chain also raised its full-year earnings guidance, forecasting revenue rising between 9% and 10%, compared to analysts' 8.2% consensus growth estimate.
• Varonis Systems — The data security stock rallied 13% after posting better-than-expected second-quarter results. Varonis reported adjusted earnings of 5 cents per share, better than an expected loss of 2 cents per share, according to analysts polled by FactSet. Revenue also came in above expectations at $130.3 million compared to a $124.8 million consensus estimate. Varonis also issued stronger-than-expected guidance for the current quarter.

Read the full list here.

— Sean Conlon

Howmet Aerospace surges 12% after earnings

Shares of Howmet Aerospace popped more than 12% after the aircraft components maker reported earnings that beat analysts' expectations.

That gain made Howmet the best-performing S&P 500 stock in early trading. It also put it on pace for its biggest one-day gain since May 2, when it jumped 15.5%.

— Fred Imbert

Consumer confidence beats expectations

The Conference Board's consumer confidence index rose to 100.3 this month from 97.8 in June, even as consumers felt less optimistic about current business and labor market conditions.

"Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates, and uncertainty about the future; things that may not improve until next year," Conference Board chief economist Dana Peterson wrote.

"Expectations for future income improved slightly, but consumers remained generally negative about business and employment conditions ahead," Peterson added.

— Fred Imbert

Job openings edged lower in June while hiring slumped

Job openings edged lower in June while the hiring rate hit its highest level, excluding Covid-impacted data, in nearly 11 years.

Available jobs totaled 8.18 million for the month, a decrease from the upwardly revised 8.23 million in May, according to the Labor Department's Job Openings and Labor Turnover Survey released Tuesday. Economists surveyed by Dow Jones had been looking for 8.1 million. The ratio of openings to unemployed workers held around 1.2 to 1.

While the openings number was little changed, the hiring level tumbled by 314,000, taking the rate as a share of the workforce down to 3.4%. The last time it was lower, excluding April 2020 and the mass Covid-related layoffs, was October 2013.

— Jeff Cox

Grayscale Bitcoin ETF sees mechanical price drop ahead of 'mini' fund launch

The Grayscale Bitcoin ETF (GBTC) dropped more than 10% Tuesday morning, but the move is a mechanical change that should not hurt the fund's shareholders.

On Friday, the U.S. Securities and Exchange Commission approved a rule change for an exchange to list a "mini" version of the Grayscale Bitcoin ETF, which will have a lower management fee. The new fund would effectively be a spinoff of 10% of the bitcoin held by the old fund.

The fund is expected to begin trading this week under the ticker BTC.

Shareholders in the old fund should be given a stake in the new fund as well when it launches on a one-to-one basis, meaning that the exposure to the underlying bitcoin will remain the same.

— Jesse Pound, Tanaya Macheel

Weaker pricing power and poor China demand hurt Procter & Gamble sales

Procter & Gamble is seeing top-line pressure, posting its third consecutive revenue miss for the first time since 2016. Organic sales growth also modestly missed Wall Street expectations, rising 2% versus an estimate of 3.2%.

A big problem is developing for P&G: Price hikes are slowing and demand has also been tepid. Prices rose 1% in the latest quarter, the smallest year-over-year gain since October 2021. Meanwhile, volume also rose 1% and that is after a couple of quarters of flat growth, too.

Volume growth has been hurt by very poor demand out of China. Executives told analysts on the earnings call that they have seen "a weaker key consumption period in China and overall market sentiment in China has not improved." They also "expect the China recovery to be slow and to take time."

P&G said China organic sales tumbled 8% from a year ago. Contrast that to North America, where the company grew market share amid solid 4% volume growth as prices eased.

— Robert Hum

Stocks open in the green

The Dow Jones Industrial Average opened roughly 97 points higher, or nearly 0.3%, on Tuesday. The S&P 500 climbed 0.2%, and the Nasdaq Composite gained 0.2% to start the week.

— Pia Singh

Pershing Square USA IPO aims to raise $2 billion

Hedge fund manager Bill Ackman is looking to raise $2 billion in the initial public offering of his new closed-end fund, called Pershing Square USA.

The firm announced Tuesday that it plans to sell 40 million shares at $50 apiece. Pershing Square USA will also give its underwriters the option to purchase up to six million additional shares.

At one point, Pershing Square was looking to raise as much as $25 billion, according to The Wall Street Journal and Bloomberg News.

— Jesse Pound

Stocks making the biggest moves premarket

Check out some of the companies making headlines in premarket trading:

• CrowdStrike — Shares slipped 5% after CNBC reported Delta Air Lines has retained legal counsel to pursue damages from both CrowdStrike and Microsoft after a software update led to mass flight interruptions in July.
• Woodward — The aerospace and industrial equipment company slipped more than 11% after fiscal third-quarter revenue missed Wall Street estimates. Woodward posted revenue of $847.7 million in the quarter while analysts polled by FactSet forecast $853.3 million.
• F5 Inc. — Shares surged nearly 14% after the software company reported a top- and bottom-line beat in the fiscal third quarter. F5 posted adjusted earnings of $3.36 per share, compared to an LSEG estimate of $2.97 per share. Revenue of $695 million was also higher than the $686 million expected.

Read the full list here.

— Brian Evans

Pfizer shares rise on second-quarter beat, revised guidance

Pfizer shares added 1.6% in premarket trading after the drugmaker exceeded second-quarter revenue and adjusted earnings and raised its full-year outlook. The company benefited from its cost-cutting program, better-than-expected sales of its Covid antiviral pill Paxlovid and strong product sales across its non-Covid businesses.

For the quarterly period, Pfizer reported adjusted earnings per share of 60 cents, while analysts polled by LSEG expected 46 cents per share. Revenue came out at $13.28 billion, exceeding estimates of $12.96 billion.

For more on Pfizer's earnings and guidance, read here.

— Pia Singh, Annika Kim Constantino

Merck falls on disappointing guidance

Shares of Merck were down more than 1% in the premarket after the pharma giant issued weaker-than-expected earnings guidance for the full year. The company sees its full-year bottom line in a range of $7.94 per share to $8.04 per share. That missed a FactSet estimate of $8.16 per share and was below a previous company forecast.

— Fred Imbert

Europe stocks higher as investors weigh earnings

European stock markets were slightly higher Tuesday morning as corporate earnings continued to roll in.

The pan-European Stoxx 600 index was up 0.08% at 9:15 a.m. in London, with most sectors in the green.

While most major bourses gained, London's FTSE 100 fell 0.68% as drinks giant Diageo plunged more than 10% after posting a sales decline.

— Jenni Reid

CrowdStrike shares tumble on news that Delta is seeking damages after outage

Delta Air Lines has hired attorney David Boies to seek damages against CrowdStrike and Microsoft after an outage earlier this month resulted in thousands of flight cancellations, CNBC reported.

News of the development, reported by CNBC's Phil LeBeau, sent shares of CrowdStrike tumbling 5%. Microsoft shares inched lower by less than 1%.

The outage — which occurred on July 19 after a software update from CrowdStrike led to a massive disruption of Microsoft systems — cost Delta an estimated $350 million to $500 million.

Shares of CrowdStrike are off more than 32% in July.

Read more details from CNBC's Jordan Novet and Ari Levy here.

— Darla Mercado

U.S. homebuilding stocks growing 'more squeezable' as buying momentum mounts, S3 Partners says

Homebuilding stocks "should become more squeezable as increased consumer housing demand drives long buying momentum and stock prices," according to a recent note from S3 Partners' managing director of predictive analytics Ihor Dusaniwsky.

That trend has probably already begun, with S3 observing "a trickle of short covering over the last seven days with $40 million of Homebuilding shares bought-to-cover."

"We should see a reversal of the short selling activity we have seen over the last 30 days due to the large mark-to-market losses short sellers have incurred," Dusaniwsky wrote. Short positions in homebuilding stocks have lost $959 million on a year-to-date, mark-to-market basis, or almost 18%, S3 said. More than 60% "of every Homebuilding shorted stock was an unprofitable trade in 2024," said the researcher who specializes in tracking short sales. 

The $2 billion SPDR S&P Homebuilders ETF is higher by more than 16% so far in July and nearly 23% in 2024. The S&P 500 is little changed in July and ahead 14.5% in 2024.

— Scott Schnipper

Tech stocks could find support ahead, UBS says

The tech sector may soon find some support, according to UBS.

Mark Haefele, investment chief at UBS Global Wealth Management, anticipates that the recent market volatility could continue as investors continue to dump tech stocks for other interest rate-sensitive assets. The Nasdaq Composite is the lone major index headed for a losing month.

However, he added the recent pullback could soon result in an attractive entry point for the sector. Over the past decade in markets history, there has been at least one 10% correction in global tech every year, and a bounce back in the six months afterward. The one notable exception is during the 2017 bull market.

"We think the tech sector should find support in the coming weeks and resume its leadership," Haefele wrote. "In fact, the recent pullback creates a reentry opportunity, in our view, especially for those companies with strong earnings growth visibility."

— Sarah Min

Investors are punishing stocks that miss earnings more than normal

Companies with disappointing quarterly results are getting punished more than usual this earnings season.

Second-quarter earnings misses have resulted in an average 3.8% decline for a stock from two days before the quarterly release through the two days after the report comes out, according to FactSet. That is compared to the five-year average price decrease of 2.3% during this same window for companies that disappointed.

The ones that beat Wall Street expectations have been rewarded less than average. They are seeing only a 0.3% rise during that same period, per FactSet. That is compared to a five-year average price increase of 1%, FactSet said.

— Yun Li