[New York Stock Market] Nasdaq Falls 2.04% on Google and MS Earnings Shock... Recession Concerns Resurface

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange showed weakness on the 26th (local time) due to the disappointing earnings of Google Alphabet and Microsoft (MS), which fell short of market expectations.

On that day, the Nasdaq index, which is tech stock-centered, closed at 10,970.99, down 228.12 points (2.04%) from the previous session. The S&P 500 index, focused on large-cap stocks, also ended trading at 3,830.60, down 28.51 points (0.74%).

The Dow Jones Industrial Average reversed to an upward trend just before the close and finished at 31,839.11, rising only 2.37 points (0.01%) compared to the previous session.

By individual stocks, the weakness of tech stocks was prominent. Alphabet fell 9.14% from the previous session. MS slid 7.72%. This was due to earnings released the day before that fell short of market forecasts. This spread concerns about tech stocks reliant on advertising, leading to a simultaneous decline in stocks such as Meta (-5.59%), which announced earnings after the market close that day, Amazon (-4.10%) releasing earnings on the 27th, and Apple (-1.96%).

Spotify dropped more than 13% due to a third-quarter loss exceeding expectations. Boeing also slipped 8.77% due to a large quarterly loss. Texas Instruments fell 2.65% after lowering its future earnings outlook. On the other hand, Harley-Davidson’s stock jumped 12.61% thanks to strong earnings. Visa also closed up 4.60% as its sales and net income exceeded market expectations. Fast-food restaurant chain Wingstop’s stock rose more than 15%, boosted by strong earnings and a recent decline in chicken prices.

Investors closely watched corporate earnings, key economic indicators, and movements in Treasury yields that day. Due to the poor earnings of Alphabet and MS released earlier, the earnings outlook for other big tech companies has also darkened. Fahad Kamal, Chief Investment Officer (CIO) of Kleinwort Hambros, mentioned that these two companies are representative in advertising and product flow, stating, "As advertising growth appears to be slowing, fears of profit slowdown are increasing."

With the average mortgage rate surpassing 7%, additional indicators confirming signs of cooling in the housing market emerged. The U.S. Mortgage Bankers Association (MBA) reported that the average rate for a 30-year fixed mortgage reached 7.16%, the highest level since 2001.

The U.S. new home sales for September, released that day, decreased by 10.9% compared to the previous month. The Wall Street Journal (WSJ) reported this as the largest decline since April (-12.4%). September new home sales were down 17.6% year-over-year, interpreted as a result of demand slowing due to soaring mortgage rates. The August S&P CoreLogic Case-Shiller Home Price Index (seasonally adjusted), released the day before, fell for the second consecutive month.

The U.S. trade deficit for September, announced on the same day, increased 5.7% from the previous month to $92.2 billion, reflecting the impact of a strong dollar. The Atlanta Federal Reserve Bank’s "GDP Now," which provides real-time U.S. GDP forecasts, updated the third-quarter real growth rate to 3.1%. The U.S. third-quarter GDP will be released on the 27th.

In the New York bond market, amid falling Treasury yields, the inversion between short- and long-term yields deepened. Following the 2-year U.S. Treasury yield, the 3-month yield also surpassed the long-term benchmark 10-year yield. The 3-month yield traded at 4.02%, exceeding the 10-year yield of 4.01%. The phenomenon of long-term bond yields falling below short-term yields is generally interpreted as a recession warning signal. At one point during the day, the 10-year yield dropped to 3.995%, breaking below the 4% level.

This has raised concerns that recession warning signals have intensified. The New York Times (NYT) cited economist Arturo Estrella, formerly of the New York Federal Reserve Bank, reporting that since the late 1960s, recessions have occurred within 6 to 15 months after the inversion of 3-month and 10-year yields. Dr. Estrella emphasized that this is a "formula for determining recession."

Due to recession warnings, expectations for a Federal Reserve (Fed) pivot have slightly increased. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market still strongly reflects a giant step (0.75 percentage points) in November, but the probability of a 0.5 percentage point rate hike, which was only in the 3% range the day before, rose to the 10% range that day. The possibility of a big step in December following the November giant step stands at 55%, exceeding the 38.6% chance of an additional giant step in December.

The dollar showed weakness. The Bloomberg Dollar Spot Index fell about 1% that day amid declining Treasury yields. The Dollar Index, which measures the dollar’s value against six major currencies, also dropped more than 1%, falling to the 109 level.

Oil prices rose due to the weak dollar. At the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil prices closed at $87.91 per barrel, up $2.59 (3.04%) from the previous session.

This content was produced with the assistance of AI translation services.