NEW YORK: US stocks tumbled on Thursday (Oct 26), dragged by tech and tech-adjacent megacap shares as investors digested mixed quarterly earnings and signs of economic resiliency that could encourage the Federal Reserve (Fed) to keep interest rates at a restrictive level longer than expected.

All three major US stock indices ended in the red, and all remain on track for weekly declines.

The tech-heavy Nasdaq suffered the biggest percentage drop, weighed down by the “magnificent seven” group of megacap stocks in the face of cloudy earnings guidance and the “higher for longer” interest rate scenario.

The Dow Jones Industrial Average fell 251.63 points, or 0.76%, to 32,784.3, the S&P 500

lost 49.54 points, or 1.18%, to 4,137.23 and the Nasdaq Composite dropped 225.62 points, or 1.76%, to 12,595.61

The NYSE FANG+ index of momentum stocks closed down 2.7%.

“Today is all about the ‘magnificent seven’ and I don’t think there’s anything they could have released on the earnings front that could have satisfied folks,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina. “So we’re seeing investors take profits and a rotation out of everything that has worked this year into everything that hasn’t.”

Third-quarter reporting season has shifted into overdrive and is nearing its halfway point, with nearly a third of the companies in the S&P 500 slated to post results this week.

At last glance, roughly four in five companies were beating earnings estimates. Analysts’ most recent estimates call for aggregate year-on-year S&P 500 earnings growth of 2.6%, according to LSEG.

A swath of robust data included a 4.9% quarterly annualised jump in third-quarter gross domestic product, the strongest reading in nearly two years, feeding investor worries about restrictive Fed policy.

“Investors were “digesting the economic data through the lens of an aggressive Federal Reserve … it challenges the notion that the Fed will start lowering rates in 2024,” said Greg Bassuk, CEO at AXS Investments in New York.

“Ironically, while the numbers are strong they exacerbate investor concerns about the Fed staying higher for longer with respect to interest rates,” he added.

Meta Platforms beat third quarter revenue and profit expectations, but forecast 2024 spending will exceed analyst forecasts and suggested the Israel conflict could dampen fourth quarter sales. Its shares fell 3.7%.

United Parcel Service lowered its revenue forecast for 2023, sending its shares down

5.9%.

Chipmaker Western Digital Corp slid 9.3% merger talks with Japan’s Kioxia Holdings were

called off.

IBM jumped 4.9% following its consensus-beating quarterly report, buoyed by solid demand for its software solutions. – Reuters