Stock Market: The US stock market witnessed a sharp decline on Thursday as the Nasdaq Composite (^IXIC) tumbled over 1.8%, driven by concerns from recent Meta (META) and Microsoft (MSFT) earnings. Both companies exceeded Wall Street expectations; however, investor sentiment took a hit after they revealed plans to increase spending on AI infrastructure—a move stirring worries about the impact on Big Tech profitability. The S&P 500 (^GSPC) dropped about 1%, while the Dow Jones Industrial Average (^DJI) slid nearly 0.6% amid widespread losses in the major indexes.
Rising AI Investments Stir Profit Concerns in Big Tech
Meta and Microsoft flagged rising AI costs as they continue ramping up investments to remain competitive. Despite reporting strong revenues, this increased AI spending has raised questions about margins and future profitability, leading to a sell-off in their stocks. The cautious sentiment rippled through the sector, with Amazon (AMZN) and Apple (AAPL) also experiencing early-session declines as they prepare to release earnings later on Thursday.
This week’s earnings reports round off the season for the so-called “Magnificent Seven” tech companies, intensifying focus on how AI-related costs will impact long-term financial stability in the sector.
Inflation Data Adds Pressure Before Fed Decision
Thursday also brought new inflation data, providing the Federal Reserve with a final economic gauge ahead of its policy decision next week. The Personal Consumption Expenditures (PCE) index—the Fed’s preferred inflation measure—showed a “core” annual increase of 2.7% in September, surpassing economist expectations of 2.6%. This suggests inflation remains steady, adding another layer of complexity as the Fed contemplates its next move on interest rates.
Strong Job Market Keeps Investors Cautious
Labor data further complicated market sentiment, with initial jobless claims dropping by 12,000 to 216,000, the lowest in five months and below estimates of 230,000. The sharp decrease follows October’s jump in private payrolls, creating uncertainty around the broader economic outlook ahead of the pivotal monthly jobs report due Friday.
Looking Ahead: Earnings, Economic Data, and Fed Policy
Investors are bracing for an action-packed end to the week, with Amazon and Apple earnings and upcoming economic reports set to influence the market. The combination of tech earnings, inflation data, and strong job market figures adds to the uncertainty for investors, who are eagerly awaiting the Fed’s policy stance next week.
As market participants evaluate the effect of mounting AI costs on Big Tech’s profitability, all eyes remain on the Federal Reserve for signals on the path forward. The focus on core inflation and employment trends highlights the high stakes involved in this week’s economic and corporate releases, setting up an intense close to October trading.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult a qualified financial advisor or conduct your own research before making investment decisions.
