Tech Stocks Closed Lower Yesterday, Oil Was Up, But Treasury Yields Were Down With The 10-Yr Below 5%
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Stocks closed mixed yesterday, although mostly lower. The tech-heavy Nasdaq and S&P took the brunt of it, giving up -2.60% and -1.21%.
Headlines attribute the selloff to continued concerns over AI spending and if it'll generate profits quick enough to justify current valuations.
Wednesday afternoon's earnings by Meta reminded people of that. While they positively surprised on both top and bottom lines, and grew earnings and sales, not to mention upped guidance, they did produce a negative free cash flow of -$2.12 billion, which was their first negative print since 2012.
Oil shooting up yesterday didn't help. Reports that the U.S. and Israel have drawn up plans of possible renewed attacks on Iran after the midterms is keeping energy markets on edge.
But I would like to remind that currently, more oil is coming out of the Middle East now (roughly 24 million barrels a day as of last week), than before the war began.
Treasury yields were unfazed, however. The 10-year fell below 5%, closing at 4.95%, down from Wednesday's 5.15%.
The above is partly why I am believing that yesterday might have been the end of the pullback, or at least getting nearer the end of this pullback. Timing the market can be tough. But yesterday felt overdone. And seemed to come out of nowhere. Additionally, the Dow was up (only 0.02% -- not much, but up nonetheless), and the small-cap Russell 2000 was up as well (0.11%).
Tech took the drubbing. But spending concerns feels like an old narrative.
Of course, with it being earnings season, we'll soon see if those concerns are real or not.
Only 23 companies in queue to report today. But next week heats up with as many as 984 companies on deck to report, including 3 more Magnificent 7 stocks: Alphabet and Microsoft on Wednesday, and Amazon on Thursday.
Even though earnings season is off to a slow start price-action-wise, stocks typically go up during earnings season. And I'm not expecting this one to be any different.
In other news, yesterday's Weekly Jobless Claims fell -6,000 to 194,000 vs. the consensus for 200,000.
Leading Indicators were flat last month at 0.0% m/m vs. estimates for -0.2%.
And the Kansas City Fed Manufacturing Index came in at 11 vs. last month's 14 and views for 12.
Today we'll get the PMI Composite Report and Consumer Sentiment.
In spite of the rough October so far (although it?s not over yet), October is typically the best month for stocks in midterm years with an average gain of 3.0%. I should also note that November is close behind with 2.7%. And both have win ratios of greater than 70%, with October up 73.7% of the time and November up 78.9% of the time.
Additionally, Q4 is historically the best quarter of the year (since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%). So there's that too.
And contrary to recent worries or headlines, the AI boom is still alive and well, and accelerating. And I'm expecting a strong end-of-year finish. And then another boom year next year, which would match the dot-com boom of 1995-1999, when we saw 5 long years of double-digit gains, which sent stocks soaring.
And with AI being touted as the most transformational technological breakthrough ever, there's no reason why it shouldn't.
We'll see if the market can regroup and put some green on the board today.
Best,

, Zacks Investment Research
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