The NASDAQ 100 index has been trading lower over the past week as tech giants such as Alphabet Inc, Amazon.com, Microsoft Corp, Meta Platforms, and Netflix Inc all plummeted, as investors digested a slew of economic data, disappointing earnings results, and weak forward guidance.
NASDAQ 100 underperformed the rest of the U.S. benchmark indices in 2022 and its performance is likely to remain in the shadow of the Dow Jones Industrial Average in the coming months. From their respective all-time highs, the Dow Jones shed 13%, the S&P 500 declined 21% and the NASDAQ 100 slumped 33% as of Friday.
Analysts have lowered their expectations for the third quarter reporting season, which led to many ‘’beats’’, but gloomy earnings and warnings by growth companies’ executives, including Microsoft, Alphabet, Amazon, and Meta, ignited concerns that the aggressively rising interest rates are slowing down economic growth and is impacting corporate earnings.
On Thursday the U.S. Bureau of Economic Analysis released GDP data for Q3 2022, showing that the economy grew 2.6% YoY exceeding forecast of 2.4% and rebounding from a contraction in the previous two quarters. Excluding trade and inventories, real final sales to domestic private purchasers increased at an anaemic 0.1%, according to government data.
On Friday the Federal Reserve’s favourite inflation rate, the PCE price index was released and showed core inflation came slightly weaker than expected. This raised hopes among investors that a smaller interest rate hike could be delivered in December, while at present the market has fully priced in another 75-basis point hike in November. The weak corporate reports, along with data suggesting the economy is softening is also raising hopes that the Fed could take a less aggressive approach at its December meeting.
Shares of large cap tech companies such as Microsoft, Alphabet and Meta Platforms, which reported downbeat earnings earlier this week, have traded deeply in the red. Amazon.com joined the club of Big Tech firms that have disappointed investors also forecasting a slowdown in sales growth. Apple cautioned revenue growth could see some pressure in the December quarter, but the overall result showed some resilience.
