The S&P 500 lost 1.7% in a volatile session on Friday, in which it never touched positive territory. Disappointing earnings reports from Amazon (AMZN 162.81, -139.36, -7.8%) and Alphabet (GOOG 1071.47, -24.10, -2.2%) rattled a fragile market pestered by peak-earnings concerns.
The benchmark index briefly dipped into correction territory, characterized by a 10% pullback from a prior high, before it took a sharp turn upwards in late morning trading. Nevertheless, the comeback proved futile, as stocks eventually rolled over again. The 11 S&P 500 sectors all finished lower.
The Dow Jones Industrial Average lost 1.2%, the Nasdaq Composite lost 2.1%, and the Russell 2000 lost 1.1%.
A stronger-than-expected advance Q3 GDP reading (+3.5% actual vs +3.3% Briefing.com consensus) took a backseat in Friday's trading action to Amazon lowering its fourth quarter revenue guidance and Alphabet missing third quarter revenue expectations. The encouraging headline GDP figure, though, was tempered by the understanding that real final sales, which exclude the change in private inventories, increased just 1.4%, marking the slowest growth rate since the fourth quarter of 2016.
Amazon and Alphabet weighed heavily on the underperforming consumer discretionary (-3.6%) and communication services (-2.4%) sectors, as their disappointments filtered through to other growth stocks, which have been beaten down sharply this month on valuation concerns.
Facebook (FB 145.37, -5.58, -3.7%), Netflix (NFLX 299.83, -13.04, -4.2%), and Apple (AAPL 216.30, -3.50, -1.6%) also backpedaled from notable gains in the previous session, adding pressure to the communication services and information technology (-1.9%) sectors.
In other earnings news, Mohawk Industries (MHK 115.03, -36.04, -23.9%), Western Digital (WDC 44.19, -9.82, -18.2%), and Colgate-Palmolive (CL 59.58, -4.24, -6.6%) contributed to angst over future earnings growth.
Flooring manufacturing company Mohawk cited weakening demand, inflation, and pricing pressures for its lower outlook; Western Digital said customers are being more conservative, resulting in softening demand; and Colgate-Palmolive encountered profit margin pressures from higher raw material and packaging material costs.
Conversely, Dow component Intel (INTC 45.69, +1.38) easily beat consensus revenue and EPS estimates for the third quarter and issued fourth quarter guidance that exceeded analysts' average estimates. Shares of the chip maker finished 3.1% higher.
U.S. Treasuries prices rose, as the market turmoil drove some safe-haven positioning. The 2-yr yield decreased five basis points to 2.81%, and the 10-yr yield dropped six basis points to 3.08%. The U.S. Dollar Index traded 0.3% lower at 96.37, though not far from its two-month high.
Overseas, markets closed on a downbeat note amid the early negative price action in the U.S. market.
Reviewing Friday's economic data:
- Real GDP increased at an annualized rate of 3.5% (Briefing.com consensus 3.3%) while the price deflator checked in at a lower-than-expected 1.7% (Briefing.com consensus 2.1%). Personal spending (PCE) was robust, up 4.0%, which was the strongest pace of growth since the fourth quarter of 2014. PCE contributed 2.69 percentage points to the change in real GDP.
- The key takeaway from the report is that real final sales of domestic product, which subtracts the change in private inventories, were up just 1.4% -- the weakest growth rate since the fourth quarter of 2016.
- The final October reading for the University of Michigan Index of Consumer Sentiment was 98.6, down slightly from the preliminary reading o 99.0 and the final September reading of 100.1.
- The key takeaway from the report is that consumer sentiment has not been unduly affected by the stock market sell-off or the jump in interest rates. The outlook for consumers is still rooted in feelings about job security.
Looking ahead, investors will receive PCE Prices, Personal Income, and Personal Spending for September on Monday.
- Nasdaq Composite +3.8% YTD
- Dow Jones Industrial Average -0.1% YTD
- S&P 500 -0.6% YTD
- Russell 2000 -3.4% YTD