What moved
- US: The Nasdaq Composite fell 1.38% to 26,185 and the S&P 500 slipped 0.3% to 7,720. The Dow eased 0.25%. The Russell 2000 of smaller companies finished 1.01% higher, which shows the selling was concentrated in a few giants. Nasdaq 100 futures are down 2.48% as the after-hours results come in.
- Europe: Markets closed higher across the board. The DAX gained 1.31%, the CAC 40 1.05% and the Euro Stoxx 50 0.64%. The FTSE 100 lagged with a 0.26% rise.
- Asia: The Nikkei closed 2.2% higher and the Kospi 5.31% higher. The Hang Seng ended 0.36% lower and Shanghai was flat.
Why
Alphabet was the main story of the day. Its third-quarter revenue rose 25% but came in slightly below forecasts. Search and YouTube advertising also underperformed. Investors were more concerned about cash. Capital spending more than doubled to $51.4bn, free cash flow was negative $9.1bn, and long-term debt reached $125.1bn. The shares fell about 12%. Microsoft rose after Azure grew 48%, because it can pay for its AI spending from its own cash flow. That is the explanation that held up at the close: investors are now separating AI spenders that fund themselves from those that borrow. Communication services and technology were the only two US sectors to fall.
The rest of the market rose. Health care led, helped by strong earnings from Lilly, Merck and Bristol Myers Squibb. Bonds also helped. On Wednesday the Fed held rates at 3.75–4.00%. Two policymakers voted for a rise, but Chair Warsh sounded slightly dovish, and today the 5-year yield fell 7bp and the 10-year 5.6bp. Lower long-term yields support share valuations, especially for smaller companies, which helps explain the Russell 2000's gain.
In Europe, the ECB held its deposit rate at 2.5%, as expected, and Lagarde said she will step down next year. Strong results from adidas, Renault and Shell lifted the main indices. Lloyds fell 5.04% despite a jump in quarterly profit, and no clear reason has emerged. Brent fell 3.25% to $111.57 on signs of diplomacy between the US and Iran. US crude (WTI) barely moved, so that explanation is incomplete.
Sentiment & risk appetite
Risk appetite was broader than the index losses suggest. Nine of eleven US sector funds rose, from health care's 2.4% gain down to energy, while communication services fell 1.87% and technology 1.18%. The VIX volatility index edged up only to 17.2, and the MOVE index of bond volatility fell to 93.5. The dollar index fell 0.3% and gold 0.31%, so investors were not rushing to safe havens. Across PrimerIQ's European universe, 1,901 stocks rose and 1,608 fell. Asia was much weaker beneath the Nikkei's gain: in our Asian universe 9,523 stocks fell and 2,886 rose, and the median technology stock lost 3.68%. Bitcoin dropped 3.08%.
Economic calendar
US third-quarter GDP, released at 08:30 ET, showed annualised growth of 3.4%, above the 3.2% expected and up from 2.2% in the second quarter. Inflation was less reassuring. September PCE prices rose 0.5% on the month and 3.6% on the year, and core prices rose 0.3% and 3.1%. The bond market looked past these figures and focused on the Fed's tone. The ECB's decision at 13:15 GMT was a hold, as expected. Next up are Tokyo's October CPI at 23:30 GMT tonight and the Bank of Japan's decision on Friday, expected between about 02:30 and 03:30 GMT, with Governor Ueda's press conference at 06:30 GMT.
Earnings
Amazon's earnings per share of $1.89 missed the $1.97 consensus, and revenue was just short of forecasts. That overshadowed AWS growth of 39%, reported as its fastest in nearly five years. The shares are about 6% lower in extended trading. Intel easily beat third-quarter forecasts, but it guided to fourth-quarter revenue of $15.5bn, against a consensus of about $17bn, blaming weak PC demand. The shares fell about 18%.