“With the earnings season taking the wheel, the Nasdaq and S&P 500 face a sinking journey, keeping investors on the edge of their seats.”
Stocks opened lower today as investors continue to digest the impact of disappointing Big Tech earnings reports, as well as rising bond yields. The tech-heavy Nasdaq and S&P 500 both dropped about 0.5% and 0.4% respectively, while the Dow Jones Industrial Average remained relatively flat. Tech stocks have been under pressure since Wednesday, when they experienced their worst single-day performance in eight months. Earnings reports are currently driving stock performance, and investors are punishing megacaps whose third-quarter reports turned out to be more downbeat than expected.
In terms of specific earnings reports, Meta’s (formerly Facebook) earnings beat expectations on both the top and bottom lines. However, the company’s shares reversed initial gains after it warned that geopolitical unrest could negatively impact its ad business. Thursday will see the release of earnings reports from Amazon, Intel, Ford, and Chipotle, among others.
There are growing concerns that valuations are too high in a world of surging Treasury yields. The benchmark 10-year yield fell slightly after the latest GDP reading came in stronger than expected. The US economy grew at its fastest pace in nearly two years during the third quarter, with an annualized growth rate of 4.9%. This data comes despite the Federal Reserve’s higher for longer interest rate stance, which has failed to slow down consumer spending. The Fed’s next interest rate decision is scheduled for November 1st.
Other central banks are also starting to shift their monetary policy. The European Central Bank (ECB) held interest rates steady for the first time in over a year, following ten consecutive rate increases. The ECB also maintained its previous guidance of steady policy moving forward.
Overall, stocks opened lower today, with the Nasdaq leading the losses. The strong US GDP growth in the third quarter highlights the resilience of the American consumer, despite concerns of a slowdown. However, many economists believe this may be the peak of economic growth before the impact of the Federal Reserve’s interest rate hikes and rising bond yields becomes more apparent.
