Earnings Impact Investors as Markets Decline: Analyzing Economic Data

U.S. Stocks Plummet as Tech Giants Struggle with Earnings

Meta Platforms Forecasts 2024 Spending Above Estimates

UPS Lowers Full-Year Revenue Outlook

Western Digital Plunges as Kioxia Merger Scrapped

Amazon.com Rises in Extended Trading After Results

On October 26, U.S. stocks witnessed a significant decline, largely due to weak performances from tech and tech-adjacent megacap stocks. This drop came as investors analyzed mixed quarterly earnings reports and indications of economic resilience, which could result in the Federal Reserve maintaining higher interest rates for a longer period than initially anticipated. All three major U.S. stock indexes closed negative, with weekly declines expected.

The Nasdaq, which focuses heavily on tech stocks, experienced the largest percentage drop. This was primarily influenced by the underwhelming earnings guidance and the expectation of interest rates staying high for an extended period. The NYSE FANG+ index of momentum stocks also closed down 2.7%.

Scott Ladner, the Chief Investment Officer at Horizon Investments, commented on the situation, stating, “Today is all about the ‘magnificent seven,’ and I don’t think there’s anything they could have released on the earnings front that could have satisfied folks.” Ladner also noted that investors are taking profits and shifting their investments away from assets that have performed well this year in favor of those that haven’t.

The third-quarter reporting season is currently in full swing and is nearly halfway complete, with nearly a third of S&P 500 companies expected to release their results this week. At the moment, around 80% of companies have exceeded earnings estimates. Analysts predict a year-on-year S&P 500 earnings growth of 2.6%.

A wave of robust economic data, including a 4.9% quarterly annualized surge in third-quarter GDP, has raised concerns among investors regarding the Federal Reserve’s restrictive policies. Greg Bassuk, CEO at AXS Investments, highlighted this dynamic, stating, “Investors were digesting the economic data through the lens of an aggressive Federal Reserve… it challenges the notion that the Fed will start lowering rates in 2024.” He also added, “Ironically, while the numbers are strong, they exacerbate investor concerns about the Fed staying higher for longer with respect to interest rates.”

In terms of market performance, the Dow Jones Industrial Average fell by 0.76% or 251.63 points to 32,784.3, the S&P 500 dropped by 1.18% or 49.54 points to 4,137.23, and the Nasdaq Composite experienced the highest decline of 1.76% or 225.62 points to 12,595.61.

Among the 11 major sectors in the S&P 500, communication services recorded the largest percentage loss, falling by 2.6%. On the other hand, the real estate sector saw the most significant gain, rising by 2.2%.

Several notable companies also made headlines. Meta Platforms beat third-quarter revenue and profit expectations, but their 2024 spending forecast exceeded analyst estimates. Additionally, they highlighted potential sales dampening due to the conflict in Israel, leading to a 3.7% decline in their shares. UPS lowered its revenue forecast for the full year, resulting in a 5.9% drop in its shares. Western Digital Corp experienced a significant plunge of 9.3% after merger talks with Japan’s Kioxia Holdings were called off. However, IBM’s shares surged by 4.9% due to their better-than-expected quarterly report, driven by strong demand for their software solutions. Amazon.com fared well, with their shares rising in extended trading following better-than-expected quarterly revenue results.

In terms of market breadth, decliners outnumbered advancers on the NYSE and Nasdaq exchanges. The S&P 500 had no new 52-week highs but recorded 35 new lows, while the Nasdaq Composite reported 13 new highs and 429 new lows.

The volume on U.S. exchanges reached 11.63 billion shares compared to the 10.72 billion average over the last 20 trading days.

Reporting was provided by Stephen Culp, with additional contributions from Ankika Biswas and Shashwat Chauhan in Bengaluru. Editing was done by David Gregorio.

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