Wall Street closed lower on Thursday, dragged by tech and tech-adjacent megacap shares as investors digested a slew of mixed quarterly earnings and signs of economic resiliency that could encourage the Federal Reserve to keep interest rates at a restrictive level for longer than expected.
All three major U.S. stock indexes ended in the red. The tech-heavy Nasdaq suffered the biggest percentage drop, weighed down by the “magnificent seven” group of megacap stocks in the face of cloudy earnings guidance and the “higher for longer” interest rate scenario. The NYSE FANG+ index of momentum stocks closed down 2.7%.
The Canadian benchmark index closed lower as well, with tech stocks also sinking the most. It was the seventh straight day of losses for the S&P/TSX Composite Index, its longest losing streak in five years.
“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,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina. “So we’re seeing investors take profits and a rotation out of everything that has worked this year into everything that hasn’t.”
Third quarter reporting season has shifted into overdrive and is nearing its halfway point in the U.S., with nearly a third of the companies in the S&P 500 slated to post results this week.
Roughly four in five companies are beating earnings estimates. Analysts’ most recent estimates call for aggregate year-on-year S&P 500 earnings growth of 2.6%, according to LSEG.
A swath of robust U.S. data Thursday included a 4.9% quarterly annualized jump in third-quarter GDP, the strongest reading in nearly two years, feeding investor worries about restrictive Fed policy.
“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,” said Greg Bassuk, Chief Executive Officer at AXS Investments in New York.
“Ironically, while the numbers are strong they exacerbate investor concerns about the Fed staying higher for longer with respect to interest rates,” Bassuk added.
The benchmark yield on 10-year U.S. Treasury notes was down 10.6 basis points at 4.847%. It breached 5% on Monday after doing so last week for the first time in 16 years.
Yields have rallied in October on expectations the U.S. Federal Reserve will maintain a higher-for-longer rates course in the face of persistent inflation. But yields moved lower on Thursday.
Helping to prompt that move was a measure of U.S. inflation, core personal consumption expenditures (PCE), coming in weaker than expected at 2.4%, its lowest since the fourth quarter of 2020. The data showed consumer spending remained strong in the third quarter, which analysts have pointed to as a major factor in the economy’s resilience.
The TSX ended down 72.54 points, or 0.4%, at 18,875.31, its lowest closing level since October 2022. The losing steak was the index’s longest since September 2018.
The Toronto market’s technology sector fell 2.5%, tracking the weakness in U.S. growth names.
Economically sensitive industrials were down 1.4% and the materials group, which includes precious and base metals miners and fertilizer companies, lost 0.8%.
Defensive and interest-rate sensitive sectors were bright spots thanks to the lower bond yields. The utilities sector rose 0.9%, while heavily weighted financials were up 0.7%.
The Dow Jones Industrial Average fell 251.63 points, or 0.76%, to 32,784.3, the S&P 500 lost 49.54 points, or 1.18%, to 4,137.23 and the Nasdaq Composite dropped 225.62 points, or 1.76%, to 12,595.61.
Of the 11 major sectors in the S&P 500, communication services saw the largest percentage loss, falling 2.6%, while real estate gained the most, rising 2.2% on the session.
Meta Platforms beat third quarter revenue and profit expectations, but forecast 2024 spending will exceed analyst forecasts and suggested the Israel conflict could dampen fourth quarter sales. Its shares fell 3.7%.
United Parcel Service lowered its revenue forecast for 2023, sending its shares down 5.9%.
Chipmaker Western Digital Corp slid 9.3% merger talks with Japan’s Kioxia Holdings were called off.
IBM jumped 4.9% following its consensus-beating quarterly report, buoyed by solid demand for its software solutions.
Shares of Amazon.com rose in extended trading after the e-commerce giant reported better-than-expected quarterly revenue.
Declining issues outnumbered advancing ones on the NYSE by a 1.02-to-1 ratio; on Nasdaq, a 1.14-to-1 ratio favored decliners. The S&P 500 posted no new 52-week highs and 35 new lows; the Nasdaq Composite recorded 13 new highs and 429 new lows. Volume on U.S. exchanges was 11.63 billion shares, compared with the 10.72 billion average for the full session over the last 20 trading days.
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Reuters, Globe staff