Stocks sank at the open and stayed down through Thursday's close, the weight of unmet earnings expectations for several Magnificent 7 stocks dragging the major indexes into the red.
Data showing still-stabilizing inflation and still-healthy employment situations nudged interest rates higher early in the session. Rate-cut odds remain steady, however, a day ahead of the release of the October nonfarm payrolls report.
In today's economic news, the Personal Consumption and Expenditures Price Index (PCE) was up 0.2% in September, according to the Bureau of Economic Analysis, up from 0.1% in September but in line with the consensus forecast.
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Core PCE, which excludes food and energy, increased 0.3%. Core PCE is the Federal Reserve's preferred measure of inflation.
The year-over-year increase of 2.1% for headline PCE was the lowest reading since February 2021 and was down from 2.3% in August. Core PCE, meanwhile, was steady at 2.7% on an annual basis.
The yield on the 10-year Treasury note ticked up nearly seven basis points intraday to 4.33% before settling basically flat at 4.28%, though the key benchmark is up nearly a full percentage point, or 100 basis points, in about a month.
The fed funds futures market continues to reflect a greater than 90% probability the central bank will cut its benchmark interest rate by a quarter-percentage point during next week's Federal Open Market Committee meeting.
Employment and inflation
Complementing the PCE data, initial jobless claims came in at a seasonally adjusted 216,000 for the week ended October 26, a decline of 12,000 from the previous week's revised level, according to the Department of Labor.
"The big picture is that inflation continues to head lower, albeit with some bumps (like in September)," says Sonu Varghese, global macro strategist at Carson Group. "This report is unlikely to change the expectation of the Fed cutting rates by 25 basis points at their November meeting, but the December decision may be up in the air depending on upcoming payroll and inflation data."
The Bureau of Labor Statistics (BLS) will release its employment situation summary for October on Friday at 8:30 am Eastern time. A consensus compiled by FactSet forecast nonfarm payroll growth of 120,000, down from 254,000 in September.
The BLS said worker strikes at companies such as Boeing (BA) will reduce the nonfarm payroll number by 41,000. The impact of recent hurricanes in Florida and North Carolina is yet to be quantified.
Economists expect the unemployment rate to be steady at 4.1%.
The S&P 500 shed 1.9% to end October at 5,705. The Dow Jones Industrial Average was down 0.9% to close the month at 41,763. The Nasdaq Composite lost 2.8% this Halloween to 18,095.
And that's all about the gravity of the Magnificent 7. It's just math: Their collective appreciation means they make up big chunks in capitalization-weighted indexes, and when they move those indexes will move with them.
The Magnificent 7 report
Indeed, pre-market trading indicated today's gap-down open, as two Mag 7 bellwethers posted solid operating and financial numbers after Wednesday's closing bell but failed to meet Wall Street's beat-and-raise cadence this time around.
Big Tech capital expenditure budgets continue to expand, though investors and analysts alike keep hoping for improving returns on their significant investments in artificial intelligence (AI).
Meta Platforms (META) stock declined 4.1% even after the Facebook, Instagram and WhatsApp parent beat top- and bottom-line estimates for its third quarter.
User-growth numbers failed to meet forecasts, and Meta's capex budget was up 36% during the third quarter to $9.2 billion. Management said in a statement that it expects a “significant acceleration” in capex spending in 2025.
Like META, Microsoft (MSFT) stock fell 6.1% after the technology giant beat top- and bottom-line expectations for its fiscal 2025 first quarter but issued guidance that came up short.
Management forecast Azure revenue growth of 31% to 32% versus expectations of 32.25%. Azure revenue was up 33% during the fiscal first quarter. Microsoft's capex spending for the third quarter was up 5% to $20 billion.
With results from META and MSFT as well as Tesla (TSLA) and Alphabet (GOOGL) in the books, Amazon.com (AMZN) and Apple (AAPL) are in the earnings calendar spotlight after tonight's close.
Nvidia (NVDA) will be the last of the Mag 7 to report, on November 20.
Carvana soars after earnings, Uber slumps
Carvana (CVNA) stock surged 19.3% after the online used car retailer delivered a top- and bottom-line beat for its third quarter and issued a strong outlook for the fourth quarter.
"The third quarter was another exceptional quarter for Carvana. We had record performance in virtually every key financial measure," said Carvana CEO Ernie Garcia in a statement.
"Most importantly, our customer experiences, our financial performance, and our pace of growth continue to separate us further from the pack in our industry. Today, we are the most profitable and fastest-growing automotive retailer and there is still much more to do."
One analyst sees a lot more upside from here for CVNA.
Uber Technologies (UBER) stock slid 9.3% after the ride-hailing company beat top- and bottom-line expectations for its third quarter but came up just short of gross bookings expectations.
In keeping with the day's theme, Uber also issued guidance for the fourth quarter that was just below expectations.
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