Stocks head into a week of megacap earnings, a Federal Reserve meeting and a key inflation report while the AI trade keeps stumbling. Meta's slump after its results has weighed on the broader market, and investors now watch Alphabet, Amazon and Microsoft for signs of further strain.
Wall Street faces a heavy week as 163 S&P 500 companies are set to report results, led by Alphabet, Amazon and Microsoft. They follow Meta Platforms and Tesla, whose results met a surprisingly poor reception this past week and dragged down the broader market.
Meta's spending worries spread to hyperscalers
Meta's stock slumped more than 9% this week after it reported negative free cash flow for the first time since its public debut. On Thursday, the spread on its five-year credit default swaps reached all-time highs.
That has stoked fear that next week's reporters will disclose heightened capital spending, perhaps by as much as $100 billion, according to Evercore's Mark Mahaney. However, he said investors may already have priced in bad news, since Alphabet is down more than 5% this week while Amazon and Microsoft are each down about 1%.
Tech splits as October ends
On Friday, the Nasdaq Composite was set to close the month down by more than 3%, with the S&P 500 also lower. The Dow Jones Industrial Average alone is set to end the month higher, by nearly 3%.
Inside tech, the picture diverges. Semiconductors are down more than 15% this month, but software stocks, and cybersecurity names in particular, are set to end the month with gains.
Fed meeting and PCE put Warsh in focus
The Fed meets Oct. 27-28, and if it holds rates at 3.75% to 4.00%, as is widely expected, Chairman Kevin Warsh will have to explain the pause. Economic data since September shows inflation moving further away from the Fed's 2% target, but a weak September jobs report and patient comments from Fed officials have curbed expectations of a rate hike.
The central bank's preferred inflation gauge follows the next day. The September PCE price index is projected to have risen 0.5%, slower than the prior month's 0.9%, while core inflation is expected to have risen 3.1% over the past year, up from 3.0%.
Of the S&P 500 companies that have reported so far, 82% have beaten expectations. Any further cracks in the AI trade, though, could mean a tech-fueled selloff.
Source: CNBC
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