Key Takeaways
- After Meta And Microsoft Disappoint, Amazon Impresses
- High Market Volatility Expected Amid Economic Data, Election Uncertainty
- Oil Higher As Middle East Tension Increases
Stocks were beaten down on Thursday after earnings from Meta Platforms and Microsoft gave investors a scare. More on that in just a bit. The S&P 500 fell 1.9% and the Nasdaq Composite dropped 2.76%. Small cap stocks didn’t fare much better with the Russell 2000 down 1.7%. The best performing index was the Dow Jones Industrial Average, down just under 1%.
Thursday also brought the most recent read on inflation. The Personal Consumption Expenditures (PCE) Index for October showed core prices increased 0.3% month-over-month, which was expected. On a year-over-year basis, prices increased 2.7%, slightly ahead of estimates of 2.6%, but at the same rate we saw in September. That number comes following Tuesday’s job openings report, which was slightly weaker than expected, and today’s employment report. Today’s report was forecast to show 106K new jobs created, down from last month’s 254K. And the unemployment rate was expected at 4.1%. The actual number of net new jobs created was just 12K while unemployment held steady at 4.1%. It’s worth noting that the largest loss of jobs was in manufacturing at that was likely a result of the strike at Boeing. Both September and August were revised downward by a total of 112K jobs.
Turning back to earnings, after the close on Thursday both Amazon and Apple reported their latest quarterly reports. Amazon posted strong numbers across the board; however, cloud revenue was slightly below expectations. Shares of Amazon traded higher by 6% after-hours, after having lost 3.4% on Thursday. Apple reported a beat on both earnings and revenues; however, net income was down following a payment related to a tax decision in Europe and the company delivered a lukewarm forecast on iPhone sales. Services sales also came in light. Still, shares were down 1.8% after-hours after being down 1.8% during regular trading hours on Thursday.
I mentioned at the top of this column the scare both Meta Platforms and Microsoft gave investors. Both companies talked about substantial expenses they expect to incur as the continue investing in Artificial Intelligence (AI). While I understand the investments are significant, I actually find it exciting and encouraging. Clearly companies are seeing significant upside potential in AI, and one gets the feeling, the investments being made are for the long haul. This isn’t a hardware product that will eventually become obsolete at some point.
If we think about the lifecycle of development, we’re obviously seeing infrastructure investment first. That is benefiting data centers and the chip makers such as Nvidia and other hardware companies. Included in infrastructure spending is how these data centers will be powered. Nuclear companies like Oklo have seen share prices surge recently. Once the infrastructure is in place, the next logical step will be creating AI offers for customers. Therefore, while the payday for companies like Microsoft, Meta and others from the investment in AI might still be a little way out, to me, this has a feel very similar to what we saw in the early days of the internet. There will undoubtedly be companies that don’t make it, but I believe it is also going to bring a whole new host of companies investors may not be familiar with today but will be over the next few years.
Some other items of note include Boeing. Leaders of the machinist union reached a deal with the company to end a nearly two-month-long strike. The agreement calls for a pay raise of 38% over four years and will go to all union member for a vote on Monday. Boeing shares are higher by 2% in premarket. Ford announced it was suspending production of its F-150 Electric Vehicle (EV) indefinitely. That stock is unchanged in premarket. Intel reported earnings that were better than expected. The company also raised guidance as it begins to make some headway in the AI space. Intel shares are higher by 6% in premarket. Shares of Exxon are higher by 2.5% after the company beat forecasts and raised its dividend to $0.99. Chevron is also higher by 2% as that company issued a beat on both earnings and revenues. And lastly, a report from Axios says Iran may be planning an attack on Israel out of Iraq. That news has oil trading higher by 2% in premarket.
For today, I think we’re going to see a battle of narratives between earnings, the jobs number and next week’s election. Earnings have been okay overall so far, but investors will have to decide if the long-term payoff for AI is something they believe in. The employment number was much weaker than expected, even when factoring in the Boeing strike impact. I expect the report to also become a factor in closing arguments over the next several days for both top of the ticket candidates. I also anticipate we may see some positioning ahead of next week. While the election will be the focus, it’s also another big week for earnings and we also have a decision on interest rates coming from the Fed on Thursday. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.