4.05pm: A tale of two markets
Mixed fortunes for US markets today with strong gains on the DJIA, spurred by better than expected economic data, and heavy losses on the Nasdaq hit by a 25% fall in the Meta share price.
At the close the Dow Jones Industrial Average was up 199 points, or 0.62%, to 32,038, the S&P 500 was down 23 points, or 0.59%, to 3,808 and the Nasdaq Composite slipped 178 points, or 1.63%, to 10,793.
Better than expected third quarter GDP figures had earlier sent the Dow over 500 points higher earlier allaying fears of a recession - for now at least - while there was also encouraging news on the inflation front.
The chain-weighted price index, a cost-of-living measure that is adjusted to reflect changing consumer behaviour, rose 4.1%, but well below the 5.3% estimate.
That offered hope for market observers looking for data indicating inflation was coming down, which could lead the Federal Reserve to ease rate hikes after the November meeting.
Better than expected results from McDonalds and Honeywell (NYSE:HON) supported their shares but the strength in the Dow was not shared elsewhere where the rout in Meta and the tech sector weighted on the S&P and the Nasdaq.
12.05pm: Dow running 350 points higher
US indices saw the tech-heavy Nasdaq Composite dragged down by the lowest share prices since 2016 for social media giant Meta Platforms, while the Dow Jones soared on new GDP numbers.
At midday, the S&P 500 was flat at 3,829, the Nasdaq Composite was down by 0.9% at 10,70 while the Dow Jones rose by 350 points or 1.2% to 32,216 points.
Joshua Mahony, senior market analyst at online trading platform IG, said Meta is driving down the Nasdaq while better than expected US economic growth data is lifting the Dow.
“US growth stocks are failing to live up to their name of late, with the collapse in Meta shares driving the tech sector lower once again. Underperformance for the Nasdaq comes amid a session that does see continued optimism for many traditional businesses,” Mahony wrote in a report.
“Most notably, we are seeing the Dow outperform as manufacturing stocks gaining in the wake of improved demand and margins for industrial giant Caterpillar. It seems the hefty valuations based around future earnings for growth stocks can come back to bite investors when current numbers start to underperform,” he wrote.
The US gross domestic produce data showed an increase at a 2.6% annualized pace for the third quarter, easing concerns about a recession.
The major movers at midday were digital workflow company ServiceNow rise by over 12%, while cloud-networking company Arista Networks was up by almost 9% and Caterpillar was up by 8%.
On the downside, Meta Platforms sank by 22.9% after it shared disappointing fourth quarter guidance yesterday. Invisalign producer Align Technology (NASDAQ:ALGN) hit a new 52-week low, down by 17.5% after missing 3Q earnings yesterday.
9.40am: US economy grew in 3Q after two quarters of declines
US stocks opened mixed on Thursday buoyed by a higher-than-expected GDP reading for the third quarter, with the Nasdaq Composite dragged down by disappointing quarterly results from tech giants Meta, Alphabet, and Microsoft.
Just after the market opened, the Dow Jones Industrial Average had added 442 points or 1.4% at 32,281 points, the S&P 500 was up 18 points or 0.5% at 3,848 points, while the Nasdaq was down about 21 points or 0.2% at 10,950 points.
After two straight quarters of declines, the US economy grew at an annualized rate of 2.6% in 3Q, above the expected 2.4%.
Forex.com market analyst Fiona Cincotta said the headline figures have masked what is going on beneath the surface. “Wild swings in trade and inventories have been behind the technical recession in 1H and now this stronger-than-expected rebound,” she said.
“The reality is that consumer growth, which accounts for more than two-thirds of the US economy, is slowing. The Fed is likely to pay more attention to tomorrow’s personal consumption expenditures (PCE) data tomorrow than today’s GDP figures ahead of the next week’s FOMC meeting.”
Following the release of weak 3Q results, shares of Facebook’s parent company Meta plunged almost 24%, trading at about $99.10.
On the other hand, Shopify soared 11% after the Canadian eCommerce company posted a quarterly revenue beat and smaller-than-expected losses.
6.30am: Tech stocks under pressure
US stocks were expected to open mixed on Thursday, with wider gains dented by falls in tech stocks as the unfolding earnings season reveals an uncertain outlook for big tech companies.
Futures for the Dow Jones Industrial Average were 0.3% higher in pre-market trading, while those for the S&P 500 were flat, and contracts for the Nasdaq-100 shed 0.5%.
Apple and Amazon are due to release quarterly results today and investors are worried that they might mirror some of the concerns, including dwindling advertising revenue, flagged in recent earnings from Facebook's owner Meta and Alphabet which owns YouTube and the popular search engine Google.
“Earnings news proved to be something of a drag in market sentiment yesterday, with major Wall Street indices losing pace. The Dow finished barely ahead, whilst some big misses amongst tech stocks left the NASDAQ more than 200 points lower at the close,” noted James Hughes chief market analyst at scopemarkets.com.
“Arguably the slightly better than expected home sales data (on Wednesday) also gives the Fed a little more headroom, but attention now will be on the Q3 GDP data," he added.
The GDP data is expected to show a rebound into positive territory after two successive quarters of contraction and would be seen as positive for the policy hawks on the Federal Reserve and potentially pour more cold water on stocks, Hughes noted.
Over recent weeks, investors have tended to treat softer economic data as a reason to buy stocks. Investors are beginning to hope that softer economic data will persuade US rate-setters to step back from continuing to hike interest rates aggressively, having raised interest rates by three 75 basis points hikes this year as they attempt to head off inflation which remains at around 40-year highs. A return to stronger data will likely dampen that enthusiasm and push stocks lower.
“Numbers from Caterpillar will also be under scrutiny, with the stock seen by many as a good measure of global economic growth,” added Hughes.
Contact the author at jon.hopkins@proactiveinvestors.com