On Wednesday, the Nasdaq and S&P 500 declined as chip stocks plummeted, while investors prepared for a series of corporate earnings announcements.
Alphabet’s shares climbed after the company exceeded expectations for its third-quarter revenue and profits, fueled by strong performances in its cloud services and YouTube advertising, marking the first of the five “Magnificent Seven” megacap stocks to report this week.
Microsoft and Meta Platforms are poised to release their results after the market closes, which are anticipated to reveal how substantial investments in AI are affecting their overall performance.
Alphabet’s success helped mitigate the impact of falling chip stocks, which were burdened by discouraging forecasts from Advanced Micro Devices and Qorvo.
At the same time, Super Micro Computer’s stock took a nosedive following Ernst & Young’s resignation as its accounting firm, and Nvidia’s shares also fell.
The Information Technology sector faced the most significant decline, while Alphabet’s gains boosted the Communication Services sector.
“The notable drops in Qorvo, Advanced Micro, and Super Micro are creating some unease, somewhat overshadowing Google’s impressive results from the previous night,” remarked Michael James, managing director of equity trading at Wedbush Securities.
“The primary focus will be on individual stock reports and guidance,” added James.
According to preliminary figures, the S&P 500 fell by 16.01 points, or 0.27%, closing at 5,816.91 points, while the Nasdaq Composite decreased by 96.37 points, or 0.52%, to reach 18,616.38. The Dow Jones Industrial Average dropped 65.14 points, or 0.15%, finishing at 42,167.91.
On the economic front, the U.S. gross domestic product grew at an annualized rate of 2.8%, based on the Commerce Department’s preliminary estimate for third-quarter GDP, slightly below the economists’ consensus forecast of 3.0% growth.
Additionally, a different report highlighted that U.S. private payrolls saw an unexpected surge of 233,000 jobs in October.
The close contest between U.S. presidential candidates Kamala Harris and Donald Trump also remained a significant consideration for investors ahead of the November 5 election.
Starbucks is anticipated to announce earnings after the market closes.
In the UK, the markets avoided severe repercussions from the Labour government’s inaugural budget on Wednesday, which proposed £40 billion in tax increases to address financial shortfalls but alleviated concerns regarding excessive public spending and potential turmoil in the debt markets.
As finance minister Rachel Reeves balanced substantial increases in debt and investments alongside commitments to strict control of daily expenditures, investor anxieties over a repeat of the chaos that followed then-prime minister Liz Truss’ September 2022 mini-budget diminished.
Government borrowing costs, measured via 10-year gilt yields, reached their highest level since May at around 4.38%, yet the increase was modest compared to two years prior. Meanwhile, the pound strengthened, and the domestically-focused FTSE mid-250 index briefly surged by over 1.5%.
“Investors were apprehensive of another Liz Truss scenario, yet ultimately, the announcements don’t indicate an uncontrollable debt increase,” commented Nabil Milali, portfolio manager at Edmond de Rothschild Asset Management.
Investor nerves ahead of the budget had heightened after it was revealed that British public borrowing nearly reached 100% of GDP, with Reeves blaming the previous Conservative government for creating a £22 billion fiscal “black hole.”
The unease was reflected in the decline of shares in UK retailers and pub operators, accompanied by rising gilt yields.
However, after Reeves announced a plan for around £100 billion in capital spending over the next five years and directed tax increases at businesses rather than workers on Wednesday, the FTSE 250 index rebounded, while UK retail and banking stocks rallied.
“Had this budget been more fiscally conservative, one would have anticipated further gilt rallies and equities declining,” remarked Liam O’Donnell, fixed income manager at Artemis.
