Tech Turbulence: Stocks Tumble Amid Global Outage

Stock futures in the U.S. took a tumble on Friday as investors reevaluated pricey large-cap tech stocks, amidst widespread disruptions caused by a global tech outage affecting businesses across various sectors.

Several major U.S. airlines imposed ground stops due to communication issues, while financial services and banks reported system outages disrupting their operations.

In premarket trading, Microsoft saw a 2.7% decline following the cloud disruption, while CrowdStrike Holdings dropped 19% after the Australian government linked some outages in the country to issues with the company.

The tech disruption followed a challenging two days for Wall Street, marked by scrutiny of second-quarter earnings and a shift away from mega-cap tech stocks, which have been pivotal in driving the equity rally in 2024.

Other major tech companies like Nvidia and Apple saw declines of 0.9% and 0.3%, respectively. Pre-market trading for chip stocks was mixed: Taiwan Semiconductor Manufacturing fell 1.8%, while Broadcom rose 0.10%.

The London Stock Exchange Group's Workspace platform was also affected by the outage, disrupting user access globally and causing market disruptions. Meanwhile, Euronext reported inaccuracies in broadcasting some North American stock-based indices.

"There is speculation that cybersecurity firm CrowdStrike's update didn’t mesh well with Microsoft's operating system, leading to the system failures. Until more details emerge, it's premature for investors to gauge the financial or reputational impact on these businesses," said Dan Coatsworth, investment analyst at AJ Bell.

Over the past two sessions, the Nasdaq Composite fell 3.5%, the S&P 500 lost 2.1%, and the Russell 2000 ended a five-day winning streak on Wednesday.

Reflecting investor anxiety, the VIX, Wall Street's volatility index, traded above 16 points - its highest since late April.

Upcoming corporate earnings reports from American Express, The Travelers Companies, and Halliburton are expected before Friday's market open.

Investors are also anticipating comments from U.S. Federal Reserve officials John Williams and Raphael Bostic for insights into future monetary policy decisions later in the day.

Market expectations currently anticipate a 25-basis-point interest-rate cut by the Fed's September meeting, with further cuts expected by year-end, according to LSEG data.

Cybersecurity firms including Palo Alto Networks, Fortinet, and Zscaler saw gains ranging from 1.4% to 6.3% following the global disruption.

Netflix saw a 1.6% decline after warning of lower third-quarter subscriber gains compared to the previous year and forecasting Q3 revenue below estimates.