Market Overview
Australian shares are anticipated to show resilience as they prepare for the next trading session, with S&P/ASX 200 futures pointing to a higher open. This expected local strength stands in contrast to a significant tech sell-off that gripped Wall Street, largely triggered by disappointing earnings from major technology companies. Alphabet, in particular, experienced a historic plunge, fueling what some are calling “AI angst” and raising questions about the sustainability of the artificial intelligence trade. Alongside this divergence, central banks maintained a cautious stance, while key corporate earnings and commodity developments provided additional market context.
Markets
US equity markets closed lower, snapping a three-day advance as corporate earnings reports weighed on sentiment. The Nasdaq Composite (^IXIC) shed 1.38% to finish at 26,184.72, while the S&P 500 (^GSPC) slipped 0.30% to 7,720.39. The Dow Jones Industrial Average (^DJI) also declined, falling 0.25% to 52,342.56.
Technology behemoth Alphabet (GOOGL) led the downturn, plummeting 12.64% to 283.82. Other major tech names also fell, with Amazon (AMZN) closing down 4.25% at 243.79 and Intel (INTC) losing 3.62% to 92.07. Cloud infrastructure partners CoreWeave (CRWV) and Nebius (NBIS) also saw declines, falling 4.99% to 60.74 and 5.68% to 171.99, respectively.
Outside the tech sector, Caterpillar (CAT) experienced its worst day since March 2020, dropping 9.25% to 647.39. In a counter-narrative, pharmaceutical giant Merck (MRK) advanced 3.83% to 146.33 after raising its guidance. Microsoft (MSFT) closed marginally lower by 0.16% at 530.14, reversing earlier gains.
In commodities, Brent Crude (BZ=F) fell 3.25% to 111.57, while Gold (GC=F) declined 0.33% to 4,038.30. Iron ore prices, however, rose 1.4 per cent to $US91.50 a tonne near 3pm New York time, as reported by AFR.
The US 10-Year Treasury Yield (^TNX) ended the session lower by 5.60 basis points at 4.989%. Australian 10-year government bond yields also eased, according to AFR’s market snapshot. The AUD/USD (AUDUSD=X) currency pair saw a marginal gain of 0.01% to 0.7031. Cryptocurrency Bitcoin (BTC-USD) closed down 2.77% at 79,018.
Looking ahead to the next scheduled trading session, S&P/ASX 200 futures were up 0.2 per cent to 8920 near 6am Sydney time, indicating a positive open for Australian shares despite the overnight US tech weakness.
What Drove Markets
The primary driver of the broad US market downturn was a significant tech sell-off, sparked by Alphabet’s weaker-than-expected earnings. The Google owner saw more than $US500 billion ($711 billion) in value wiped out, marking its biggest one-day fall in history. This substantial plunge, combined with concerns that artificial intelligence is impacting its core advertising business, fueled widespread “AI angst” and intensified scrutiny on the AI trade. The Nasdaq was down 1.38 per cent, and semiconductor stocks also declined.
Other tech and semiconductor stocks followed suit. Amazon and Intel finished the regular session down 4.25% and 3.62%, respectively. Both companies subsequently reported earnings after the closing bell, with Amazon’s disappointing fourth-quarter revenue outlook and Intel’s weak guidance adding to concerns about technology-sector growth. Even Microsoft, which beat estimates on Azure cloud growth, closed marginally lower, with its capital spending outlook raising concerns that infrastructure partners like CoreWeave and Nebius might take longer to deliver data centre capacity. The iShares Semiconductor ETF (SOXX) and the Roundhill Memory ETF (DRAM), which track AI stocks, have experienced a “rough patch” for most of October.
Despite this significant US tech weakness, Australian shares are projected to open higher, suggesting a degree of insulation for the local market. This divergence may be attributed to Australia’s different sectoral composition or distinct local market drivers.
Central bank actions also remained in focus. The Federal Reserve held interest rates steady between 3.75% and 4%, as widely expected. Policymakers noted that inflation “remains elevated,” with the personal consumption expenditures (PCE) price index having accelerated in September. The Fed stated it is awaiting the “accumulation of more information” before taking further steps on interest rates, implying continued data dependency. Separately, the European Central Bank also held rates steady, though attention shifted to President Christine Lagarde’s announcement that she would step down early.
Commodity markets saw varied movements. Industrial metals were in focus following Rio Tinto’s news of halting underground operations at its Oyu Tolgoi copper mine. Iron ore prices increased, while Brent Crude and Gold prices moved lower in the US session.
Beyond the tech giants, other US corporate earnings contributed to selective stock movements. Caterpillar’s disappointing sales in its construction industries business led to a sharp decline. In contrast, Merck advanced after lifting its guidance for the year, providing a positive earnings counter-narrative. Separately, Microsoft drew $US115 billion demand for a jumbo debt offering. The US economy also grew at a faster-than-expected 3.4% in the third quarter, adding to the economic backdrop.
Stocks to Watch
- Alphabet (GOOGL): Its historic plunge and “AI angst” suggest a market recalibration of its valuation and expectations for its core advertising business amidst AI integration.
- Amazon (AMZN): Its projection of fourth-quarter sales below estimates indicates a key challenge for the company’s outlook.
- Caterpillar (CAT): The company’s forecast for “moderate” sales growth in the fourth quarter, following recent disappointing sales in construction, is a key indicator for the industrial sector outlook.
- Microsoft (MSFT): Despite beating cloud growth estimates, concerns about capital spending and data center capacity for infrastructure partners like CoreWeave and Nebius remain relevant for its outlook.
- Rio Tinto (RIO.AX): The halt of underground operations at its Oyu Tolgoi copper mine is a material development impacting the Australian market and the broader mining sector.
- Merck (MRK): The pharmaceutical firm’s lifted guidance offers a positive earnings story against a backdrop of mixed corporate results, and its performance could serve as an indicator for its sector.