US market down as earnings roll in; investors assess economic data

US stock market: US stocks tumbled on Thursday, dragged by tech and tech-adjacent megacap shares as investors digested mixed quarterly earnings and signs of economic resiliency that could encourage the Federal Reserve to keep interest rates at a restrictive level longer than expected. All three major US stock indexes ended in the red, and all remain on track for weekly declines.

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 (.NYFANG) closed down 2.7 per cent.

"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, with nearly a third of the companies in the S&P 500 slated to post results this week.

At last glance, roughly four in five companies were beating earnings estimates. Analysts' most recent estimates call for aggregate year-on-year S&P 500 earnings growth of 2.6 per cent, according to LSEG. A swath of robust data included a 4.9 per cent 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 Dow Jones Industrial Average (.DJI) fell 251.63 points, or 0.76 per cent, to 32,784.3, the S&P 500 (.SPX) lost 49.54 points, or 1.18 per cent, to 4,137.23 and the Nasdaq Composite (.IXIC) dropped 225.62 points, or 1.76 per cent, to 12,595.61.

Of the 11 major sectors in the S&P 500, communication services (.SPLRCL) saw the largest percentage loss, falling 2.6 per cent, while real estate (.SPLRCR) gained the most, rising 2.2 per cent on the session. Meta Platforms (META.O) 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 per cent.

United Parcel Service (UPS.N) lowered its revenue forecast for 2023, sending its shares down 5.9 per cent. Chipmaker Western Digital Corp slid 9.3 per cent merger talks with Japan's Kioxia Holdings were called off. IBM (IBM.N) jumped 4.9 per cent following its consensus-beating quarterly report, buoyed by solid demand for its software solutions.

Shares of Amazon.com (AMZN.O) 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 US exchanges was 11.63 billion shares, compared with the 10.72 billion average for the full session over the last 20 trading days.