US Stock Market Faces Turbulence Amid Economic Worries

The US stock market experienced significant fluctuations on October 31, 2024, as major tech companies reported rising costs associated with artificial intelligence investments. This news, coupled with broader economic concerns, led to declines across all three major indexes, raising questions about future profitability and market stability.

Key Takeaways

• All three major US stock indexes closed lower, with the Dow down 0.9%, S&P 500 down 1.86%, and Nasdaq down 2.76%.
• Meta Platforms and Microsoft reported increased AI-related expenses, impacting investor sentiment despite beating earnings estimates.
• The Personal Consumption Expenditures (PCE) price index rose 0.2% in September, aligning with expectations but indicating persistent inflation concerns.
• Estee Lauder shares plummeted 20.9% after withdrawing its 2025 forecasts, marking its worst day on record.

Market Overview

The day began with optimism as investors anticipated strong earnings from tech giants. However, the mood shifted dramatically after Microsoft and Meta Platforms revealed that their capital expenditures were rising due to investments in AI technology. This revelation raised alarms about the potential impact on profitability, leading to a sell-off in tech stocks.

• Meta Platforms (META): Down 4.1%
• Microsoft (MSFT): Down 6%
• Alphabet (GOOGL): Down 1.9%

Despite these declines, Amazon and Apple reported better-than-expected quarterly results, with Amazon's cloud services driving revenue growth and Apple seeing an increase in iPhone sales. However, the positive news was overshadowed by the broader market's reaction to rising costs.

Economic Indicators

The PCE price index, which is the Federal Reserve's preferred measure of inflation, showed a 0.2% increase in September, consistent with economists' forecasts. The core PCE, which excludes food and energy, rose 2.7% year-over-year, slightly above the expected 2.6%. This data has kept traders focused on the upcoming Federal Reserve meeting, where a 25-basis-point rate cut is anticipated.

Investor Sentiment

Investor sentiment has been increasingly cautious, as evidenced by the VIX, often referred to as Wall Street's "fear gauge," which ticked up amid concerns over market volatility. The uncertainty surrounding the upcoming US presidential election and the Fed's policy decisions has further complicated the investment landscape.

Sector Performance

The technology sector was particularly hard hit, with chip stocks falling sharply. The Philadelphia Semiconductor Index dropped 4%, led by a significant decline in Monolithic Power Systems, which fell 17.4% after disappointing earnings. Other notable declines included:

• Nvidia (NVDA): Down 4.7%
• Uber Technologies (UBER): Down 9.3% after a weak fourth-quarter forecast

In contrast, defensive sectors like utilities showed resilience, with some stocks managing to post gains amid the broader market downturn.

Conclusion

The US stock market's recent fluctuations highlight the delicate balance between technological advancement and economic stability. As companies invest heavily in AI, the immediate impact on profitability remains a concern for investors. With the upcoming Fed meeting and the presidential election on the horizon, market participants are bracing for continued volatility in the weeks ahead.

Sources

• Wall St ends lower as megacaps highlight AI costs, Reuters.
• Asian Market Headlines | Breaking Stock Market News, Reuters.
• Sector & Industry Performance - Bloomberg, Bloomberg.
• US stocks rally as investors weigh economic data, Trump policies, Reuters.
• US stock market loses $4 trillion in value as Trump plows ahead on tariffs, Reuters.