[New York Stock Market] Even Meta... Nasdaq Down 1.76% Amid Big Tech Sell-Off

The three major indices of the U.S. New York stock market all closed lower on the 26th (local time) as earnings reports from major big tech companies such as Meta Platforms led to a sell-off in technology stocks. Strong U.S. third-quarter gross domestic product (GDP) far exceeding expectations also heightened concerns about prolonged high interest rates, failing to have a positive impact on investor sentiment.

At the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 32,784.30, down 251.63 points (0.76%) from the previous session. The large-cap S&P 500 index fell 49.53 points (1.18%) to 4,137.23, and the Nasdaq index dropped 225.62 points (1.76%) to 12,595.61. The Nasdaq index entered a technical correction zone by falling more than 10% from its previous high and continued its downward trend.

Among the S&P 500 sectors, all eight sectors except real estate, materials, and utilities showed weakness. The decline in technology and communication-related stocks exceeded 2%. Alphabet, which plunged nearly 9% the previous day, fell another 2.65% on this day. Meta also dropped nearly 4% as concerns over future earnings forecasts led to a decline in its stock price. Major tech stocks such as Microsoft (-3.75%), Apple (-2.46%), Tesla (-3.14%), and Nvidia (-3.48%) also fell in unison. Western Digital plunged more than 9% following a report by Nihon Keizai that merger talks with Kioxia had ended. Comcast fell more than 8% due to concerns over profitability related to high-speed broadband subscribers.

[Image source=Reuters Yonhap News]

Investors closely watched corporate third-quarter earnings reports and economic indicators released that day, including GDP and weekly unemployment claims. Following Alphabet’s sharp stock drop due to concerns over slowing cloud growth despite better-than-expected sales, Meta’s earnings report released after the previous day’s market close confirmed a downward trend in its stock price due to worries about operating losses in its Reality Labs division, which focuses on augmented reality (AR) and virtual reality (VR). This crushed investors’ hopes that big tech earnings could relieve pressure on sentiment caused by recent rises in Treasury yields, exerting downward pressure across the market.

Ed Moya, senior market analyst at OANDA, said, "Wall Street has not been impressed by big tech earnings so far," adding, "(Amazon and Apple, which will release earnings after the market close today) are also likely to face difficulties ahead due to a weakening U.S. economic outlook." However, Amazon, which released earnings after the regular session close, reported earnings per share of $0.94, exceeding the $0.58 estimate compiled by LSEG. Amazon also provided fourth-quarter sales guidance of $160 billion to $167 billion, with the market consensus at $166.6 billion. Amazon, which closed lower in the regular session, is showing slight gains in after-hours trading.

The strong economic indicators released that day also failed to boost investor sentiment. Strong economic growth exceeding expectations has instead strengthened views that the Federal Reserve (Fed) will maintain higher interest rates for a prolonged period.

The U.S. third-quarter GDP growth rate released that day was 4.9%, far surpassing market expectations. This is the highest level since the fourth quarter of 2021. Despite high interest rates and inflation, consumers continued spending, causing a sharp increase compared to the previous quarter (2.1%). This exceeded Bloomberg’s compiled market forecast (4.3%) and Dow Jones’s forecast (4.7%). Additionally, September durable goods orders rose 4.7% month-over-month to $297.2 billion, marking an increase after three months. Weekly new unemployment claims released the same day rose by 10,000 to 210,000, exceeding Wall Street expectations but still remaining at historically low levels.

U.S. Treasury Secretary Janet Yellen said in an interview with Bloomberg News that the U.S. GDP figure is "a very strong number" and that "the U.S. economy is doing very well," adding that the likelihood of a soft landing is high. Regarding the recent surge in long-term Treasury yields, she described it as "an international phenomenon centered on advanced economies" and stated that "it is not a sign of a recession."

In the New York bond market, the 10-year U.S. Treasury yield fell to around 4.84%. The 30-year yield stood near 4.98%, and the 2-year yield, which is sensitive to monetary policy, was around 5.03%. The dollar index, which measures the value of the U.S. dollar against six major currencies, remained steady at about 106.6.

The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, will be released the next day. The September PCE price index is estimated to have risen 0.4% month-over-month.

The market still largely expects the Fed to hold rates steady in November. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of that day, federal funds futures markets priced in a greater than 99% probability that the Fed will keep rates unchanged at 5.25% to 5.5% at the FOMC regular meeting scheduled for October 31 to November 1. Despite expectations of prolonged high rates, the possibility of an immediate rate hike is considered very low. The European Central Bank (ECB) held its monetary policy meeting that day and decided to keep policy rates unchanged, marking the first pause after 10 consecutive rate hikes.

Additionally, investors are paying attention to Middle East risks and issues such as the visit of Wang Yi, China’s top diplomat, to the U.S. Wang is scheduled to meet with U.S. Secretary of State Antony Blinken at 5 p.m. that day. The meeting is expected to discuss specific schedules and agendas for a summit between President Joe Biden and President Xi Jinping, global issues including the Israel-Hamas war, U.S. export controls on China including the semiconductor sector, and China’s retaliatory export controls.

Oil prices fell. On the New York Mercantile Exchange, December delivery West Texas Intermediate (WTI) crude oil closed at $83.21 per barrel, down $2.18 (2.55%) from the previous day.