[New York Stock Market] Dow Rises on GDP Improvement... Nasdaq Falls 1.63% Due to Meta Shock

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed mixed on the 27th (local time), as investors monitored the third-quarter gross domestic product (GDP) growth rate, which recorded the first positive growth this year, and the poor earnings of major tech companies including Meta. The Dow Jones Industrial Average, composed of blue-chip stocks, rose on the improved GDP data, while the Nasdaq, which had rebounded the previous day, notably declined due to Meta, Facebook’s parent company, reporting weak earnings.

At the New York Stock Exchange (NYSE) that day, the Dow closed at 32,033.28, up 194.17 points (0.61%) from the previous session. In contrast, the S&P 500, focused on large-cap stocks, fell 23.30 points (0.61%) to 3,807.30, and the tech-heavy Nasdaq dropped 178.32 points (1.63%) to 10,792.68.

By individual stocks, weakness in tech shares was confirmed. Meta, which revealed its third-quarter net profit had halved the previous day, plunged 24.56% from the previous close. Apple and Amazon fell 3.05% and 4.06%, respectively, ahead of their earnings announcements. Microsoft and Google Alphabet, which had earlier reported disappointing results, also slid 1.98% and 2.85%, respectively. Additionally, Swiss bank Credit Suisse plunged 20.04% due to larger-than-expected losses. Spotify jumped 17.34% after reporting smaller losses than market expectations. Caterpillar and McDonald’s closed up 7.71% and 3.31%, respectively, on earnings that exceeded market expectations. Energy stocks such as ExxonMobil and Chevron also rose slightly, supported by higher oil prices.

Investors focused on the U.S. third-quarter GDP, key economic indicators, and corporate earnings that day.

According to the U.S. Department of Commerce, the third-quarter GDP growth rate, released before the market opened, was preliminarily estimated at 2.6% annualized quarter-on-quarter, exceeding expert forecasts of 2.3%. This marked a positive growth after two consecutive quarters of contraction this year, signaling that the U.S. economy has emerged from a technical recession. The Department of Commerce stated that the improvement in the third-quarter GDP was driven by a reduction in the trade deficit, which was the main cause of the first half’s negative growth, along with increases in consumer spending, nonresidential fixed investment, and government spending. U.S. President Joe Biden, ahead of the November midterm elections, welcomed the news in a statement, saying, "Today, we have additional evidence that the momentum of economic recovery continues."

However, concerns about the economy are growing, centered on slowing consumer spending and a weak housing market, with some pointing out that the improvement is merely a distortion due to the trade balance. Consumer spending, which accounts for two-thirds of the U.S. economy, increased by only 1.4% in the third quarter. The real final sales to domestic purchasers, an indicator closely watched by economists, also showed a clear slowdown with a mere 0.1% increase.

Michael Gapen, Chief U.S. Market Economist at Bank of America (BoA), commented, "The overall number should be ignored. The growth rate is slowing down." Concerns are mounting that a recession next year is inevitable as the effects of the Federal Reserve’s (Fed) aggressive tightening accumulate. Other indicators released that day were also somewhat disappointing. September durable goods orders rose 0.4% month-on-month, below market expectations of 0.7%. Weekly initial jobless claims increased by 3,000 from the previous week.

Alongside this, the poor earnings of tech giants such as Meta, Alphabet, and Microsoft also weighed on investor sentiment. Meta announced after the previous day’s market close that its third-quarter net profit was less than half of the previous year’s. With a worsening outlook for the fourth quarter, Meta’s stock price fell more than 20% that day, which contributed to the Nasdaq’s decline, centered on tech stocks. Sebastian McKay, manager at Invesco, pointed out, "The advertising weakness confirmed in some big tech’s disappointing earnings suggests an economic slowdown." Amazon, Apple, and Intel are scheduled to release earnings after the market close that day.

In the New York bond market, Treasury yields fell. Signals from the GDP report suggested that inflationary pressures might ease in the future, pushing the 10-year U.S. Treasury yield down to around 3.9%. The 2-year yield, sensitive to monetary policy, also dropped to 4.27%.

The yield curve inversion, where short-term yields exceed long-term yields, continues. Not only the 2-year but also the 3-month yield at 4.04% surpasses the 10-year yield, a phenomenon typically interpreted as a recession warning. According to economist Arturo Estrella, a former New York Federal Reserve Bank official, since the late 1960s, recessions have invariably occurred within 6 to 15 months after the inversion of the 3-month and 10-year yields.

Currently, investors are awaiting next week’s Federal Open Market Committee (FOMC) meeting. While a giant step (a 0.75 percentage point rate hike) is virtually certain, growing recession concerns have sustained expectations that the Fed might slow its pace starting in December. BoA predicted that "the Fed will signal a slowdown in December after raising the benchmark rate by 0.75 percentage points at the November meeting." Kurt Long, Chief Economist at the National Association of Federally-Insured Credit Unions, mentioned that the GDP and inflation data support calls for a big step (0.5 percentage point hike) in December.

Edward Moya, Senior Analyst at OANDA, described the mood, saying, "The U.S. stock market is struggling to find direction as mixed earnings and data supporting an economic slowdown emerge simultaneously." He assessed, "The economy appears to be heading toward a recession, which could strengthen calls for a Fed policy pivot."

The dollar rose that day. The Dollar Index, which measures the dollar’s value against six major currencies, moved around the 110 level, up about 0.7%.

International oil prices rose as the improved GDP data and strong exports were confirmed. On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil closed at $89.08 per barrel, up $1.17 (1.33%) from the previous session.