US equities ended lower on Thursday, with the Nasdaq Composite leading the decline as investors weighed the scale of artificial intelligence spending by major tech firms and digested fresh inflation data. The pullback followed the Federal Reserve's decision to hold interest rates steady on Wednesday.
The Nasdaq Composite dropped 1.38% to 26,184.72, pressured by a sharp sell-off in Alphabet shares. The S&P 500 slipped 0.30% to 7,720.39, while the Dow Jones Industrial Average eased 0.25% to 52,342.56. In contrast, the small-cap Russell 2000 advanced, indicating the weakness was concentrated in technology rather than the broader market.
Alphabet's AI Spending Concerns Hit Tech
Alphabet shares tumbled 13% after the Google parent missed analysts' expectations for third-quarter adjusted earnings per share and revenue. The company also reported negative free cash flow of $9.07 billion, underscoring the financial strain of its AI investments. Alphabet maintained its full-year capital expenditure forecast of $195 billion to $205 billion, but the combination of weaker results and heavy spending reinforced investor worries about the cost of competing in the AI race.
Other technology and infrastructure names also declined. Microsoft shares fell nearly 1% despite stronger-than-expected quarterly earnings and 48% growth in its Azure cloud business, as its lower-than-expected capital expenditure weighed on cloud infrastructure providers. CoreWeave shares dropped 3%, and Nebius fell more than 5% on concerns about delayed data-centre capacity deliveries. The semiconductor and memory sectors retreated, with the iShares Semiconductor ETF down over 2% and the Roundhill Memory ETF losing more than 4%.
Inflation Data Complicates Fed Outlook
The market declines came a day after the Fed held its benchmark rate between 3.75% and 4%, as widely expected. Policymakers noted that inflation remains elevated and indicated they need more economic data before deciding on their next move. Thursday's economic releases showed US economic growth accelerated more than expected in the third quarter, but inflation pressures also strengthened, partly reflecting an oil supply disruption linked to the war. The September personal consumption expenditures price index, the Fed's preferred inflation gauge, showed monthly price growth matched expectations, while the annual rate came in slightly below Wall Street forecasts.
The combination of resilient growth and persistent inflation leaves investors assessing the outlook for interest rates alongside the potential impact of higher energy costs.
Mixed Corporate Earnings
Beyond technology, corporate earnings delivered a mixed picture. Of the 253 S&P 500 companies that had reported results, 81% exceeded analysts' expectations, according to LSEG data. Analysts expected aggregate third-quarter earnings growth of 31% year over year.
Caterpillar shares fell 9% despite better-than-expected quarterly revenue and earnings, as sales in its construction industries business came in slightly below estimates. Eli Lilly advanced after raising its revenue outlook on strong demand for weight-loss treatments. Ford gained following a third-quarter revenue beat, while Merck rose after exceeding earnings expectations on sales of Keytruda and Gardasil. Software stocks were particularly weak, with Fortinet and ServiceNow each falling more than 20% after their quarterly results.
This article is for informational purposes only and does not constitute financial advice.
