U.S. stocks came under pressure on Thursday, dragged down by the latest batch of corporate earnings, with two Dow components on track for premarket declines of more than 10%.
The Dow fell 0.59%, the S&P 500 lost 0.55%, and the Nasdaq dropped 1.41%.
Among the "Magnificent Seven": Apple rose 1.63%, Meta Platforms gained 1.19%, Microsoft added 0.50%, Tesla edged up 0.02%, Nvidia slipped 0.61%, Amazon fell 3.78%, and Alphabet plunged 12.50%.
Alphabet's third-quarter profit and revenue both missed expectations; it recorded negative free cash flow of $9.07 billion while maintaining its full-year capital expenditure forecast of $195-205 billion unchanged.
Caterpillar shares slid 9%. The industrial giant's third-quarter revenue and earnings both beat expectations, but sales in its construction machinery segment fell slightly short of market estimates.
In contrast, Microsoft rose 2.6%. Refinitiv data showed that the software giant's fiscal 2027 first-quarter revenue and profit both exceeded market expectations, thanks to growth in its Azure cloud infrastructure business.
Cloud infrastructure concept stocks, known as Neoclouds, weakened. Microsoft's capital expenditure came in below expectations, which the market interpreted as a sign that the delivery cycle for computing capacity from data center infrastructure partners may be lengthening.
The market is currently highly focused on the AI trade theme. AI-related stocks such as the semiconductor ETF (SOXX) and DRAM-related indices languished for most of October, recovering only in recent days.
But on Thursday both fell again, with SOXX down more than 2% and the DRAM index down more than 3%.
The Federal Reserve announced on Wednesday that it would keep rates unchanged, holding the benchmark rate in the 3.75%-4.00% range. The market had widely expected the pause; the Federal Open Market Committee had hiked by 25 basis points in September.
The Fed's statement noted that inflation remains "elevated" and said it needs to "accumulate more information" before taking further policy action.
Thursday's release of the Fed's preferred inflation gauge — the Personal Consumption Expenditures (PCE) price index — showed the monthly reading matched expectations, while the year-over-year pace was slightly below forecasts.
Daniel Siluk, head of global short duration and liquidity at Janus Henderson Investors, said: "The Fed decision can marginally be counted as dovish, but we prefer to see it as a reflection of policy patience rather than a shift away from a tightening stance. The possibility of further rate hikes remains, but the committee is willing to wait for more economic data before judging whether more action is needed."
Fed hike in December "loaded," another possible in March next year?
Fed Chair Warsh on Wednesday kept the Fed on track for another rate hike this year, though he insisted on refusing to give any clear guidance on the future policy path.
Within his self-imposed communication limits, Warsh signaled through an assessment of a strong economy and warnings about persistent inflation that the Fed's job is not yet done.
That stance reinforced market expectations that, after Wednesday's pause, officials will raise borrowing costs in December and could hike once more in early 2027.
For Deutsche Bank senior U.S. economist Brett Ryan, Warsh's refusal to call financial conditions "tight," combined with his optimistic assessment of growth, effectively confirms the Fed's September projection of "one more hike this year." "He is saying they will tighten further, just not saying it explicitly," Ryan said.
Nomura research reveals "AI panic" is fading! Earnings delivery and fund flows join forces, with the AI computing theme leading a tech stock rebound.
Nomura cross-asset strategist Charlie McElligott said in a latest research note that the AI trading theme is emerging from a prior wave of AI computing and tech growth panic, amplified by concerns over surging AI financing costs, overly crowded positioning, and accelerating hedge fund deleveraging.
The strategist stressed that large-scale AI financing being absorbed, semiconductor giants and the two major cloud computing giants broadly delivering strong results, and Anthropic's IPO filing disclosure have jointly eased the two-week "AI growth panic," while the clearing of crowded positions and excessive leverage has also created conditions for a market recovery.
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