Stocks started the day in a downward trend as investors absorb the impact of Big Tech’s underwhelming earnings report along with increasing bond yields.Thank you for reading this post, don't forget to subscribe!
The technology-heavy Nasdaq (^IXIC) and S&P 500 (^GSPC) saw declines of 0.5% and 0.4% respectively, while the Dow Jones Industrial Average (^DJI) remained stagnant.
Tech stocks continue to be under pressure after experiencing their worst performance in eight months on Wednesday.
Earnings play a significant role in stock movement, as investors penalize large companies whose third-quarter reports were more disappointing than anticipated.
While META exceeded earnings expectations in terms of revenue and profit margins, its shares reversed earlier gains following a warning from Facebook’s parent company about potential disruptions due to geopolitical unrest in its advertising business. Earnings updates continued on Thursday with Amazon (AMZN), Intel (INTC), Ford (F), and Chipotle (CMG) leading the way.
Concerns are growing that valuations are excessively high in an environment of increasing Treasury yields.
On Thursday, the benchmark 10-year yield (^TNX) experienced a marginal decrease of 3 basis points at 4.92% after the latest GDP readings showed the US economy growing at its fastest pace in nearly two years.
The Bureau of Economic Analysis’ initial estimate of third-quarter US gross domestic product (GDP) indicated an annual growth rate of 4.9%, surpassing consensus forecasts.
This robust data contradicts the Federal Reserve’s prolonged period of low interest rates, which has been unsuccessful in curbing consumer spending in the US. The Federal Reserve is scheduled to announce its next interest rate decision on November 1.
Other central banks are also beginning to make adjustments to their monetary policies. On Thursday, after ten consecutive rate hikes, the European Central Bank maintained its interest rates for the first time in a year.
The ECB announced that it would keep its deposit rate at a record high of 4% and maintain its existing policy stance moving forward.
Stocks dip at market open
At the beginning of the trading session, stocks opened at their lowest point, with the technology-heavy Nasdaq Composite (^IXIC) decreasing by approximately 0.5% due to disappointing tech earnings. The Dow Jones Industrial Average (^DJI) fell 0.1%, while the benchmark S&P 500 (^GSPC) dropped around 0.4%.
GDP: Strong consumer spending drives 4.9% economic growth
The US economy experienced its fastest pace of growth in nearly two years during the past three months as consumers increased their spending despite a high interest rate environment.
According to Yahoo Finance’s Josh Schafer:
The Bureau of Economic Analysis’ preliminary estimates of third-quarter US gross domestic product (GDP) revealed an annual growth rate of 4.9% during the period, outperforming consensus forecasts. Economists surveyed by Bloomberg estimated that the US economy grew at an annual pace of 4.5% during this period.
This figure is higher than the revised down second-quarter GDP of 2.1%.
The GDP announcement highlights the resilience of US consumers amidst ongoing recession concerns. However, many economists view this as the peak of economic growth before business growth and consumer spending are impacted by the Federal Reserve’s interest rate hikes and the recent rise in bond yields.
Read more here.
Stock futures point to further selling
On Thursday, Wall Street stocks were set to extend the significant losses from the previous day as investors awaited new earnings reports.
Futures for the Dow Jones Industrial Average (^DJI) were down 0.41%, equivalent to 136 points, while S&P 500 (^GSPC) futures fell by 0.67%. Contracts for the technology-heavy Nasdaq 100 (^NDX) were 0.95% lower.
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