Market snapshot: stocks put on Halloween horror show

A scary session on Wall Street might have triggered further losses over here on Friday, but stocks at least started higher. ii's head of markets explains what's going on.

1st November 2024 08:19

by Richard Hunter from interactive investor

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The end of month turned into something of a Halloween horror show as US markets bore the brunt of mixed mega cap technology earnings.

With lofty valuations come lofty expectations and, with each of the main indices having hit record highs throughout October, markets perhaps were riding for a fall.

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Whereas Alphabet Inc Class A (NASDAQ:GOOGL) pleased investors earlier in the week, Microsoft Corp (NASDAQ:MSFT) and Meta Platforms Inc Class A (NASDAQ:META) could not build on the momentum with their own upbeat guidance.

Despite beating earnings expectations Microsoft shares plunged by 6% on a disappointing revenue outlook, while Meta fell by over 4% after missing growth estimates and pointing towards a significant hike in capital expenditure next year as the race towards AI intensifies. This in turn raised concerns that AI expenditure could generally weigh on profitability, where valuations had been anticipating high revenue growth.

It remains to be seen whether these markdowns will be enough to blow away the cobwebs, or whether the AI frenzy has reached a plateau for the time being. At the same time, the falls are a stark reminder of the concentration risk and disproportionate impact which a handful of stocks have on the market as a whole.

In terms of the “Magnificent Seven”, there were further mixed messages after the closing bell as Apple Inc (NASDAQ:AAPL) shares fell by around 2% in extended trading. That followed a one-off charge relating to a European court decision that weighed on the earnings per share metric. More positively, Amazon shares rose by 5% as the company topped revenue and earnings estimates.

Meanwhile, there were no unpleasant surprises on the economic front, with the Federal Reserve’s preferred gauge of inflation, the Personal Consumption Expenditures index, coming in at 2.1% in September, in line with estimates. The next test which rounds off a packed week of updates, comes later with the release of the non-farm payrolls report, where the current consensus is that 113,000 jobs will have been added last month, compared to 254,000 in September and where unemployment is expected to remain steady at 4.1%.

In the background, bond investors are continuing to put upward pressure on yields, while the imminent US election brings its own level of uncertainty. Even so, and by way of context after a challenging trading day, the main indices remain in rude health in terms of their cumulative performances. In the year to date, the Dow Jones is still ahead by 10.8%, the S&P500 by 19.6% and the Nasdaq by 20.5%.

Asian markets were understandably mixed overnight, with some inevitable pressure on technology stocks across the region. The exception came from the unlikely source of Chinese shares, which showed some strength following reports of increased manufacturing activity and higher property sales in October. The factory reading edged above the level of 50, edging into growth and ending five consecutive months of contraction, which led some to suggest – perhaps prematurely – that the recently announced stimulus measures are already beginning to have an impact.

The Budget hangover which weighed on UK markets yesterday beat a tentative retreat in opening exchanges, with some oil price strength giving support to BP (LSE:BP.) and Shell (LSE:SHEL), although prompting some weakness in the likes of easyJet (LSE:EZJ) and International Consolidated Airlines Group SA (LSE:IAG). Reckitt Benckiser Group (LSE:RKT) shares rose by more than 10% at the open following a favourable court ruling in the US on a baby formula suit relating to its subsidiary Mead Johnson.

Elsewhere, there were marginal gains for some of the retailers and housebuilders, although insufficient to erase the previous day’s losses. These sectors had suffered from the unintended consequences of the National Insurance hikes announced at the Budget, whereby the possibility of companies needing to raise prices to compensate for the rises would be inflationary and could stall, or even reverse, the downward trajectory on interest rates.

In addition, businesses who now need to grapple with higher costs may crimp their investment plans for the future, including hiring, which would put pressure on unemployment In the meantime, however, the main indices remain in positive territory for the year, with gains of 5.3% and 3.6% for the FTSE100 and FTSE250 respectively.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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