Stock futures extended losses Wednesday evening after a brutal day of selling that saw the Nasdaq Composite notch its worst single-day drop since February.
The tech-heavy Nasdaq 100 futures contracts declined 0.7% in after-hours trading. S&P 500 futures also retreated 0.3%, while Dow futures hovered just below the flatline.
The moves follow a volatile regular trading session driven largely by a nearly 10% plunge in shares of Google-parent Alphabet. Alphabet posted disappointing third quarter earnings after the closing bell Tuesday, with revenue from its Google Cloud unit falling short of analyst estimates.
The disappointing results from the tech titan exacerbated a market-wide selloff that saw the S&P 500 tumble 1.4% to close below the key 4,200 level for the first time since May. The Nasdaq plunged 2.4% for its steepest single-day percentage drop in over 8 months.
“Tech giants like Alphabet and Microsoft have been investor favorites for years, so any sign of weakness in their businesses reverberates quickly through the broader market,” said Ed Campbell, senior portfolio manager at QTR Capital Management. “With inflation still hot and the Fed aggressively hiking rates, the viability of these companies’ future earnings is under the microscope.”
The downdraft in tech shares weighed heavily on the major averages, though disappointing results from General Motors and Coca-Cola also factored into the risk-off environment.
All eyes now turn to another barrage of tech earnings and high-profile economic data that could exacerbate recent market volatility.
Earnings Woes Mount After the Bell
The late-day slide in stock futures follows a mixed bag of quarterly results from big tech companies.
Facebook-parent Meta topped third quarter earnings and revenue forecasts, though the company’s high-profile metaverse division continued bleeding cash with a $3.7 billion operating loss. Meta shares sank nearly 2% in after-hours trading.
Chipmaker Advanced Micro Devices beat on both lines, but offered disappointing fourth quarter guidance amid supply chain woes and sluggish PC demand. AMD stock slumped 6%.
Align Technology, maker of Invisalign dental aligners, tumbled 23% in extended trading after missing revenue expectations and providing weak fourth quarter guidance.
The fresh earnings news comes on the heels of disappointing results from Microsoft and Alphabet. With tech giants comprising over 20% of the S&P 500’s market capitalization, the recent string of negative earnings surprises has shaken investor conviction in the high-flying sector.
“Given their immense size, missteps by companies like Microsoft, Google and Apple can quickly ripple through the broader market,” said economics professor Dan Field of the University of Pennsylvania. “When big tech stumbles, it’s hard for the major indexes to find their footing.”
GDP Data, Amazon Earnings On Tap
Thursday’s trading session brings key economic data and earnings reports that could drive further volatility.
The Commerce Department’s first estimate of third quarter GDP is expected to show the economy grew at a 2.3% annual clip, down from a 0.6% contraction in Q2. Weekly jobless claims data will also be closely watched for signs of economic softening.
On the earnings front, Amazon reports quarterly results after the closing bell. The e-commerce leader has lost nearly 40% of its value this year amid slowing online spending trends. Ford and Chipotle also deliver third quarter earnings Thursday.
Friday caps off the week with a highly anticipated inflation reading that could sway expectations for future Fed rate hikes. The PCE price index is forecast to rise 6.3% year-over-year in September, marginally slower than the prior month.
“We’re entering the most pivotal stretch of third quarter earnings season with many market heavyweights still left to report,” said Marissa Silverman, finance professor at NYU Stern School of Business. “Any major disappointments from the likes of Apple, Amazon or ExxonMobil could spark another wave of intense selling.”
With monetary policy set to tighten further and growth slowing, analysts expect elevated volatility to persist through year-end. The CBOE Volatility Index, or VIX, spiked over 6% Wednesday to top 31, its highest level since June.
S&P 500 Breaches Closely Watched Support
The S&P 500’s break below 4,200 Wednesday carries technical significance, removing a layer of support that had underpinned the index throughout its bear market decline.
The broad equity benchmark came within striking distance of its 2022 low earlier this month before rebounding back above the 4,200 mark. With this key threshold now violated, technicians say the path of least resistance is skewed to the downside.
“Breaking 4,200 decisively paves the way for a retest of the S&P’s bear market low near 3,600,” said Mike Harris, head of quantitative research at Campbell Financial Partners. “All eyes are now on 3,500, which if broken would mark a new trough for this brutal bear market.”
The S&P remains down over 22% from its all-time high notched at the start of January. The Nasdaq sits more than 33% below its November 2021 record peak.
Bottom Line
The late-October downdraft reflects myriad worries over slowing growth, persistent inflation and tighter Fed policy. With corporate earnings underwhelming and recession risks rising, investors are unlikely to find their footing until macro uncertainty abates and the economic outlook improves.
In the meantime, fragile market sentiment leaves stocks prone to continued swings in both directions. Savvy investors may look to trim portfolio risk while await greater signs of stability. As always, maintaining a long-term perspective and diversified mix of assets remains the soundest approach for enduring periods of market turbulence.
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