In a mixed final trading day of the week, the Nasdaq and S&P 500 closed in a correction on Friday evening Norwegian time. This is happening after the indices are now down 12 and 10.2 percent, respectively, from their peaks this summer. The Dow Jones index fell nine percent from its peak.
After a cautious start to the week and a broad rally on Tuesday, things turned around midweek after Microsoft and Alphabet presented their numbers. On Wednesday, things got significantly worse as the market harshly punished Alphabet for missing revenue and earnings estimates for Google Cloud. The decline continued on Thursday, which ended the second day in a row of broad declines for the major indices.
And this is how it ended on the last trading day of the week:
- The Nasdaq index rose 0.4 percent.
- The Dow Jones index fell 1.1 percent.
- The Standard & Poor’s 500 index fell 0.5 percent.
US Treasury yields have been trending lower since Thursday evening. The two-year interest rate is about 5.05 percent, while the ten-year interest rate is about 4.87 percent.
The week was dominated by number releases from Microsoft, Amazon, Alphabet and Meta, all of which delivered generally strong numbers over the past three months. Now the market turns its attention to the Federal Reserve, which will make its next interest rate announcement on Wednesday.
The Fed’s preferred inflation target
Ahead of the open on Friday, PCE figures came in from the US which showed annual price growth of 3.4 per cent in September, the same annual rate as in August. Core inflation, as measured by personal consumption expenditures figures, fell to 3.7 percent year-on-year last month, down from 3.9 percent in August.
The numbers are certainly moving in the right direction, but the path to 2% will be difficult, says Sarah Medgaard, chief economist at Handelsbanken Capital Markets.
Personal consumption expenditures numbers are often referred to as the Fed’s preferred measure of inflation, and differ from traditional CPI numbers in several ways. In contrast to the Consumer Price Index (CPI), the weights of goods and services in personal consumption expenditures are adjusted to take into account changes in people’s consumption habits.
Medgard points out that although the numbers were largely what the market expected, so-called superior fundamental growth continues to rise. These are utility prices excluding rent and energy.
In September, key interest rates rose by 0.4 percent month-on-month, after a 0.1 percent increase in the July-August period.
– It may take a long time before Powell can control this part of inflation. Medgard says the market is pricing in three cuts through 2024, which seems very optimistic.
Obsessed with the cloud
Despite the big declines of the past few days, the Nasdaq and S&P 500 are up 21 and 9 percent, respectively, for the year. However, this is largely thanks to the crazy price rises of the Big 7: Microsoft, Alphabet, Meta, Apple, Nvidia, Amazon, and Tesla.
In the market, there seems to be a pure obsession with what companies are saying about their cloud services business, with many of them putting their investments into AI.
Alphabet was punished severely when Google Cloud missed its estimates, and even Microsoft was dragged along with the broad market decline on Thursday. This is despite the fact that Microsoft Azure performed much better than expected. Amazon delivered a slightly weaker than expected performance for AWS.
Amazon shares finally rose 6.9 percent on Friday, while Microsoft and Meta shares rose 0.6 and 2.9 percent, respectively. The alphabet barely ended in red.
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