U.S. stock markets experienced a subdued start to October 2024 as mixed results from leading tech companies unsettled investors ahead of the release of the Personal Consumption Expenditures (PCE) inflation report. What began as a relatively strong quarter ended with signs of caution, particularly as investors weighed tepid growth forecasts against the broader economic outlook.
Major technology names, including Meta Platforms and Microsoft, reported third-quarter earnings that fell short of market expectations—not because of weak results but rather disappointing forward guidance.
Meta delivered earnings that met, or slightly exceeded, consensus estimates. Yet its stock declined approximately 3% in prerelease trading. Investors were taken aback by the company’s announced increase in capital expenditures—expected to exceed $38 billion for the year—signaling heavy investment in infrastructure, notably artificial intelligence (AI), that could pressure near-term margins.
Microsoft similarly faced headwinds despite posting positive third-quarter results. Its total revenue jumped 16% year-over-year to $65.6 billion, and net income reached $24.7 billion. However, its cloud segment—critical to AI growth—grew at a slower pace (20%) than the ~30% anticipated by analysts. Consequently, MSFT shares plunged around 4% premarket.
These cautious portfolios drove major tech indices lower. The Nasdaq Composite dropped by nearly 1% in premarket trading, with both the S&P 500 and Dow futures dipping as investor sentiment cooled.
The declines in tech giants reverberated across the market. The Nasdaq, heavily weighted towards technology stocks, edged lower by nearly 0.6% on October 30. The S&P 500 lost around 0.3%, while the Dow fell by about 0.2% amid the broader earnings-driven volatility. The uptick in bond yields—10-year Treasuries neared 4.3%—also reflected growing skepticism around the timing of Federal Reserve rate cuts.
October marked the S&P 500’s first monthly loss since April 2024, with the Nasdaq down roughly 0.5% for the month. Despite this, both indices had enjoyed strong year-to-date performances—S&P up roughly 19.6%, Nasdaq up 20.5%.
Investor skepticism centered largely around AI-related capital investment plans. Alphabet’s results a week prior showcased a nearly doubling in AI infrastructure spending—prompting a stock slide despite strong revenue growth. Meta’s rising projected capital expenditure and Microsoft’s slower cloud growth fed into the narrative that AI investments may suppress short-term profitability, even as companies position themselves for future gains.
Analysts caution that while CapEx-heavy strategies may weigh on near-term earnings, they reflect long-term competitiveness in the AI race. One Bank of America analyst noted: “higher CapEx should not be viewed as a disappointment. We think it’s healthier dollars spent than increasing OpEx.”
Attention now shifts to the September PCE price index, the Federal Reserve’s preferred inflation gauge. Consensus forecasts expect core PCE inflation to fall to 2.1% year-over-year, down from 2.2%, raising hopes that the Fed may feel comfortable easing its policy stance. Recently, the Core PCE has stagnated near 2.1–2.2%, prompting debate among Fed policymakers about the necessity and pace of future rate cuts. A reading at or below 2.1% could strengthen arguments for a dovish shift; a hotter print, however, might render officials more cautious.
The PCE release also precedes the U.S. employment report and a closely watched FOMC meeting, bringing a cascade of potentially market-moving events. The current backdrop includes an economy that’s remained surprisingly strong, chipping away at odds for rate cuts. Meanwhile, elevated valuations—S&P 500 trading near 22× forward earnings—suggest that market sentiment could quickly swing negative if key data disappoints.
Tech earnings season continues, with Apple, Amazon, and Intel scheduled to release later this week. Early signs point toward elevated volatility, particularly given mixed signals on AI spending and margin pressures. If PCE comes in cooler than expected, markets may rally on renewed hopes of Fed easing. Conversely, a hotter print could stall any rally and underscore investor fears about persistent inflation. In the medium term, slowing growth in AI-related investments might trigger divergent outcomes across the mega-cap tech names—some may withstand cost challenges better than others.
The early days of October 2024 highlight a market caught between technological optimism and inflation-related caution. Tech earnings have unveiled the tension between ambitious investment strategies and near-term profitability, while the Fed appears poised to let macroeconomic data shape future policy moves. As markets await both the PCE report and subsequent economic indicators, volatility may well remain elevated, yet opportunities may emerge for investors who focus on long-term structural growth themes like AI.
