New York’s stock market experienced a significant drop on Thursday, largely influenced by underwhelming earnings from Meta and Microsoft, despite both companies exceeding analyst expectations. The technology-heavy Nasdaq fell 2.76%, while the Dow Jones and S&P 500 declined by 0.90% and 1.86%, respectively. Concerns about rising costs in AI and cloud investments weighed heavily on investor sentiment, especially impacting tech stocks and semiconductor companies. Meanwhile, Uber, Starbucks, and Estée Lauder saw declines, while Roblox’s stock surged after strong earnings.
The New York Stock Exchange closed sharply lower on Thursday, as the results from Meta and Microsoft created a chill in the market, which is witnessing a surge in investments toward artificial intelligence without corresponding revenue growth. The tech-heavy Nasdaq was hit the hardest, dropping 2.76%, while the Dow Jones fell by 0.90% and the broader S&P 500 index declined by 1.86%. “The market faced intense selling pressure today due to the underwhelming results from Microsoft and Meta,” noted José Torres from Interactive Brokers in a report.
Both Microsoft (-6.05%) and Meta (-4.09%) exceeded analysts’ expectations; however, investors focused primarily on the soaring costs and investments associated with the accelerated deployment of cloud computing and artificial intelligence (AI). Both companies plan to further ramp up their infrastructure spending next year, yet the projected growth in their results does not match this pace. “Technical analysts suggest that many of the ‘Magnificent Seven’ (the major tech giants), with perhaps the exception of Meta, are losing momentum,” explained Jack Ablin from Cresset Capital. “Expectations are high”, he elaborated. “They are surpassing them, but not at the levels they used to.” This warning shot has unsettled the entire AI ecosystem, particularly affecting semiconductor stocks such as Nvidia (-4.72%), Intel (-3.50%), and AMD (-3.06%).
Investors Focused on the U.S. Election
Amid all the tech concerns, the stock market paid little attention to the Personal Consumption Expenditures (PCE) price index. This lack of reaction is partly because the figure came in as expected at 2.1% year-over-year, the lowest level since early 2001, and also due to the fact it pertains to a relatively old period, specifically September. This data stirred the bond market a bit more, acknowledging the ongoing deceleration of inflation. The yield on two-year U.S. Treasury bonds was reported at 4.16%, down from 4.18% the previous day. Wall Street also ignored the latest unemployment claims in the U.S., which were at their lowest in five months. According to Jack Ablin, the tech slowdown does not necessarily doom the U.S. stock market. “For now, many investors are concentrating on the upcoming presidential election,” he stated, “but once it’s behind us, I believe diversification into other sectors will continue.”
In market activity, Uber’s shares fell 9.29% following quarterly results that revealed the gross amount of rides was below investor expectations. Starbucks, the U.S. coffee giant, gained 0.39% after its new CEO Brian Niccol emphasized the need for a “radical” strategic shift to revive growth. The chain had already issued a warning regarding its fourth-quarter results and, to a lesser extent, its overall 2024 performance. The cosmetics group Estée Lauder plummeted (-20.89%) after reporting quarterly results that declined across all segments and regions, particularly affected by a downturn in China. Conversely, the video game publisher Roblox surged (+19.89%), as its quarterly results significantly surpassed investor expectations.