By Stephen Culp and Shashwat Chauhan
NEW YORK, Oct 29 (Reuters) – U.S. stocks fell on Thursday as investors reassessed Big Tech’s massive spending on AI as they digested high-profile earnings and crucial inflation data a day after the Federal Reserve kept U.S. interest rates steady.
All three major U.S. stock indexes lost ground, with the tech-heavy Nasdaq losing the most following Alphabet’s disappointing quarterly results released Wednesday evening.
In contrast, the small-cap Russell 2000 index gained 1.0%.
Semiconductor stocks ended their four-day winning streak, falling 1.4% as investors sought to distinguish between companies that can fund their lofty AI ambitions and those that are spending money and borrowing funds to achieve their goals.
Alphabet was in the latter camp after publishing its quarterly report Wednesday evening. Google’s parent company’s revenue shortfall was compounded by its accelerating AI-related cash burn. Its shares fell 12.6%, taking the communications services sector with them.
“A risk-free day like this, with small-cap outperformance, is a good sign that the market’s interpretation of cracks in the AI story so far does not mean cracks in every corner of the market,” said Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky. “There are plenty of other places to spend your money outside of the AI business that offer some pretty exciting prospects.”
Federal Reserve policymakers opted to keep U.S. rates steady on Wednesday, acknowledging that while price pressures remain “elevated,” the central bank will decide its next move as it “accumulates more information.”
A series of economic data released Thursday answered that call, with a first look at third-quarter GDP showing the U.S. economy grew at a faster pace than expected in the third quarter, while price growth continued to rise with a war-related oil supply crisis fueling broader systemic inflation.
The Dow Jones Industrial Average fell 132.54 points, or 0.25%, to 52,342.56, the S&P 500 lost 23.59 points, or 0.30%, to 7,720.39 and the Nasdaq Composite lost 365.13 points, or 1.37%, to 26,184.72.
The third-quarter earnings season has reached the halfway point, with 253 S&P 500 companies reporting results. Of these, 81% exceeded analysts’ expectations, according to the most recent LSEG data.
Analysts now expect overall S&P 500 third-quarter earnings growth of 31.0%, year-over-year, per LSEG.
Caterpillar beat quarterly profit estimates but left its growth targets unchanged. Shares of the heavy equipment maker fell 9.3%.
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