S&P 500 on track to join Nasdaq in correction territory as stocks head for another weekly loss

The S&P 500 is down more than 3.5% so far in October, according to Dow Jones Market Data.

What’s driving markets

U.S. investors have been focused on earnings reports this week, particularly those from megacap technology stocks that included disappointing guidance on profit margins for the year ahead.

The market got a brief reprieve earlier after Amazon.com
AMZN,
+7.08%
reported earnings that surpassed expectations on Wednesday evening, which showcased the company’s progress in lifting margins, both in its retail business and in cloud. Intel
INTC,
+9.59%
also beat estimates.

But strong numbers from Amazon weren’t enough to assuage investors concerns about the overall message coming from America’s largest companies, which have warned about soft sales volumes and potential difficulties expanding profit margins to the degree that Wall Street expects.

“I think the grand totality is you’re coming off an earnings week where some of the old economy companies were telling you that volumes were soft heading into the fourth quarter, while the majority of big cap tech stocks have told you they’re going to have flat margins next year,” said Victor Cossel, macro strategist at Seaport Research Partners.

Cossel said investors have largely disregarded “backwards-looking” economic data released this week, although the inflation numbers included in Friday morning’s PCE data raised some eyebrows.

Stocks’ optimistic mood earlier in the day may have been inspired in part by reports of a potential ceasefire between Israel and Hamas. However, as the conflict dragged on, geopolitical risks continued to weigh on investors’ minds.

“The one difficulty for the market today, going into the weekend, is concern that the situation in the Middle East could deteriorate and widen further considering a U.S. military strike against two Syrian structures, following attacks on U.S. troops in the region,” said Quincy Krosby, chief global strategist for LPL Financial.

Circling back to earnings, reports from members of the “Magnificent Seven” group of megacap companies have generally reported disappointing results, with investors reacting negatively to numbers from Tesla Inc.
TSLA,
+0.77%,
Alphabet Inc.
GOOG,
-0.27%
and Facebook parent Meta Platforms Inc.
META,
+2.44%.

The latest batch of U.S. PCE data, which includes the Federal Reserve’s preferred inflation gauge, showed the cost of goods and services rose a higher-than-expected 0.4% in September. Core inflation, meanwhile, was in line with expectations.

Data included in the release also showed consumer spending rose a sharp 0.7% in September, a sign of spending strength previously reflected in retail-sales data.

Economists analyzing the data concluded that while the increase in spending looked favorable, it came at the expense of declining savings, which helped stoke fears about the strength of the U.S. consumer heading into the final months of 2023.

“The September personal-income and spending data confirm that consumption growth remained strong at the end of [the third quarter], entering the final quarter of the year with plenty of momentum,” said Michael Pearce, lead U.S. economist at Oxford Economics.

“However, the rise in spending has been funded entirely by falling savings, with real disposable incomes declining for a third consecutive month,” he said.

Meanwhile, survey data from the University of Michigan showed consumer sentiment improved slightly at the end of October, while higher gas prices left people more worried about inflation.

Companies in focus

• Amazon.com Inc. shares
  AMZN,
  +7.08%
  rose after the e-commerce giant delivered a massive earnings beat.

• Intel Corp.’s stock
  INTC,
  +9.59%
  jumped after the chip maker beat expectations for its third quarter and delivered an upbeat forecast for the current quarter.

• Ford Motor Co. shares
  F,
  -11.63%
  fell after the automaker withdrew guidance, citing the pending agreement with the United Auto Workers, and revealed a $1.3 billion loss for its electric-vehicle unit.

• Exxon Mobil Corp. 
  XOM,
  -1.93%
  saw its shares decline Friday after the oil giant reported third-quarter profit and revenue that missed expectations as production fell, while free cash flow beat by a wide margin.

• Chevron Corp.’s stock 
  CVX,
  -6.18%
  fell after the oil giant posted third-quarter profit that fell far short of estimates.