Wall Street's three major indexes lost ground on Thursday with the Nasdaq Composite and the S&P 500 leading losses as Meta and Microsoft shares tumbled on worries over surging AI spending, while investors also digested a more hawkish tone from the U.S. Federal Reserve.
MetaMETA.O shares sank 11.3% for their biggest one-day drop in three years after the social media company forecast "notably larger" capital expenses next year, thanks to investments in artificial intelligence.
MicrosoftMSFT.O shares ended down 2.9% after the software company reported a record capital expenditure of nearly $35 billion for its fiscal first quarter and warned that spending would rise this year.
In contrast, however, Google-parent AlphabetGOOGL.Ofinished up 2.5% as steady growth in advertising and cloud computing powered better-than-expected results.
The results followed the Federal Reserve's delivery on Wednesday of a widely expected quarter-point rate cut but it raised doubts about future policy moves when Chair Jerome Powell said that another cut in December was not a "foregone conclusion." This had led traders to pare back the odds of another cut in December to about 70%, down from more than 90% earlier in the week.
"Investors are in a risk-off mood after the market's been on a run. The S&P 500's near a record high but these technology earnings didn't meet the elevated expectations," said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina, also pointing to investor worries about the economic data vacuum due to the government shutdown and a more hawkish Fed.
Bell noted that neither Microsoft, Meta nor Alphabet "was able to significantly clarify when we're going to get a return on the AI investments." She didn't expect any better clarity from closely watched Apple AAPL.O and Amazon AMZN.O results, which came out late on Thursday.
However, after closing the regular session down 3%, Amazon shares were up 9% in late trading as strong demand for its cloud computing services countered weaker growth in its e-commerce business. Apple shares rose in choppy after-the-bell trading following its report, which showed strong iPhone sales with some supply constraints.
Of the 222 S&P 500 companies that have reported so far, 84.2% have beaten earnings estimates as of Wednesday, according to LSEG data. That's above the 77% average over the past four quarters.
The Dow Jones Industrial Average .DJI fell 109.88 points, or 0.23%, to 47,522.12, the S&P 500 .SPX lost 68.25 points, or 0.99%, to 6,822.34 and the Nasdaq Composite .IXIC lost 377.33 points, or 1.57%, to 23,581.14.
Among the S&P 500's 11 major industry sectors, seven declined with consumer discretionary .SPLRCD leading losses with a 2.6% drop. Real estate .SPLRCR was the biggest gainer, adding 0.7%.
Thursday's pullback followed record highs in the three major indexes during the past four sessions, lifted by optimism around quarterly earnings and expectations for a more accommodative monetary policy stance.
Also, optimism around AI has been a key driver of the bull run in U.S. stocks this year, with the top tech companies collectively accounting for 35% of the weight of the S&P 500.
AI chip leader Nvidia NVDA.Ofell 2% on Thursday after it had given the market an extra boost the day before, when it became the first publicly listed company to surpass $5 trillion in market capitalization.
Meanwhile, a widely anticipated trade agreement between U.S. President Donald Trump and Chinese President Xi Jinping appeared to do little to boost stocks on the day.
Trump agreed to roll back some tariffs on Chinese imports in exchange for Beijing resuming soybean purchases, keeping rare earth exports flowing, and cracking down on fentanyl trafficking.
"When you get good news and markets don't react to it that tells you it's probably already discounted," said Jack McIntyre, portfolio manager at Brandywine Global.
In other stocks, drug distributor Cardinal Health CAH.N rallied 15.4% after raising its annual adjusted profit forecast.
Chipotle Mexican Grill CMG.N shares tumbled 18.2% after the burrito chain axed its annual sales forecast, with tariffs and inflation squeezing margins.
Reuters
