The S&P 500 and Nasdaq eased back from Wednesday’s record highs, while the blue-chip Dow closed with the deepest percentage decline.
“The earnings cycle is upon us and it remains to be seen whether we will see the same level of consistency in earnings growth in the coming quarter as we have seen in the last two quarters,” said Matthew Keator, managing partner of the Keator Group, an asset manager in Lenox, Massachusetts.
“Couple that with the uncertainty surrounding the lack of data from Washington and the way the Fed is dealing with it, then it is normal to see a slight decline.” The stock market pause comes amid a steep rally driven largely by the rise of artificial intelligence technology. The run-up has raised concerns about the formation of a bubble, which could be a harbinger of an impending correction. Sunday will mark the third anniversary of the current bull market; the benchmark S&P 500 reached the bottom of its current market cycle on October 12, 2022, following the Fed’s monetary tightening. While tech and tech-related megastocks have driven the index up nearly 90% in that period, history suggests the current bull market has more gas in the tank.
The US government shutdown entered its ninth day, with little sign of progress. As a result, market participants are still deprived of vital economic data. And with the start of third-quarter earnings season just days away, the paucity of market-moving catalysts is drawing investors’ attention to comments from monetary policymakers on clues about the central bank’s rate cuts through year-end. New York Federal Reserve President John Williams favors more rate cuts before the end of the year because of the risks facing the weakening labor market, he said in an interview with the New York Times published Thursday.
According to CME’s FedWatch tool, financial markets currently estimate a 94.6% probability that the Fed will implement a 25 basis point rate cut at the end of the October 28-29 meeting. The Dow Jones Industrial Average fell 243.36 points, or 0.52%, to 46,358.42, the S&P 500 lost 18.61 points, or 0.28%, to 6,735.11 and the Nasdaq Composite lost 18.75 points, or 0.08%, to 23,024.63. Of the S&P 500’s 11 major sectors, materials suffered the biggest declines, while consumer staples were the only gainers. Residential and residential construction were among the clear underperformers, both down more than 2% due to concerns about margins and demand.
Next Tuesday, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo will report quarterly results, marking the unofficial start of third-quarter earnings season.
Analysts currently forecast year-over-year earnings growth for the S&P 500 of 8.8% in the July-September period, which is weaker than the second quarter’s 13.8% and the year-ago quarter’s 9.1%, according to the latest data from LSEG. Delta Air Lines issued an optimistic forecast for the current quarter, following stronger-than-expected third-quarter earnings. The airline’s shares rose 4.3%.
Other U.S. airlines also posted gains, sending the S&P 1500 Airlines index up 1.9%.
US retailer Costco Wholesale rose 3.1% after publishing September sales data. Shares of Albemarle rose 5.3% after brokerage TD Cowen raised its price target for the lithium producer and China tightened export controls on rare earth metals.
Declining issues outnumbered advancing issues by a 2.91-to-1 ratio on the NYSE. There were 354 new highs and 91 new lows on the NYSE.
On the Nasdaq, 1,694 shares rose and 2,966 fell as declining issues outpaced advancers by a 1.75-to-1 ratio.
The S&P 500 posted 20 new 52-week highs and 11 new lows, while the Nasdaq Composite posted 133 new highs and 66 new lows.
Volume on U.S. exchanges was 20.44 billion shares, compared to the full-session average of 19.75 billion over the past 20 trading days.
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