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U.S. stocks closed lower Thursday, with the Nasdaq Composite down 1.4% after Alphabet shares fell 12.6% on quarterly results that missed Wall Street estimates. Inflation remained above the Federal Reserve’s 2% target, while futures pricing for a December rate increase eased slightly after the data.
U.S. stocks closed lower Thursday, with the Nasdaq Composite down 1.4% to 26,184, after Alphabet fell 12.6% following quarterly earnings and revenue below Wall Street estimates. Investors were also weighing September inflation data that showed prices rising faster than the Federal Reserve’s 2% target, keeping attention on the possibility of a December rate increase.
The S&P 500 fell 0.3% to 7,720, and the Dow Jones Industrial Average lost 0.3% to 52,342. Stocks opened lower and remained in negative territory through the close, according to the report. Alphabet’s decline weighed on all three major benchmarks, while Caterpillar also fell sharply after its quarterly results.
Alphabet reported third-quarter earnings of $2.67 per share, down 7% year over year, on revenue of $127.6 billion, up 25%. Analysts had expected $3.00 per share and $127.9 billion in revenue, making it the company’s first earnings-and-revenue double miss since the fourth quarter of 2022, the report said. The 12.6% share-price decline was described as the stock’s worst day on record.
The company reported negative free cash flow of $9.07 billion and capital expenditures of $51.4 billion for the quarter. Alphabet kept its full-year capital spending forecast at $195 billion to $205 billion. Its long-term debt stood at $125.1 billion, compared with $21.6 billion a year earlier. The figures have sharpened investor focus on the cost of Alphabet’s AI investment and the cash available to fund it.
Alphabet’s AI Spending Faces Scrutiny
Alphabet’s selloff reflects concerns about whether its large AI-related investment can generate returns while the company sustains growth in its established businesses. The quarter included rapid overall revenue growth, but the earnings and revenue figures both fell short of analyst estimates. Negative free cash flow and a much higher long-term debt balance added to questions about the financial demands of the spending program.
Search advertising is another pressure point. Wedbush analyst Ygal Arounian said the slowdown in year-over-year Search ad revenue growth—from 17% in the second quarter to 12% in the third—outweighed other aspects of the results. That assessment is an analyst’s view, not a company forecast. Arounian also maintained an Outperform rating, saying Alphabet has a strong ecosystem and could benefit as AI advertising develops.
The inflation figures matter for the wider market because they bear on the Federal Reserve’s interest-rate decisions. Higher rates can affect borrowing costs and valuations, including those of growth-oriented companies. However, the report said futures traders’ expected probability of a December quarter-point rate increase fell to 78% from 84% the previous day after Thursday’s economic data. That is market pricing, not a decision by the Fed.
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Inflation And Earnings Set The Tone
Thursday’s session brought together two sources of market uncertainty: company results and inflation. The report said investors were considering what another elevated inflation reading could mean for a December rate move after what it described as a hawkish pause at the Fed’s October meeting. The central bank’s preferred inflation measure, the Personal Consumption Expenditures Price Index, rose 0.5% from August to September and was up 3.6% from a year earlier.
Core PCE, which excludes food and energy, rose 0.3% month over month and 3.1% year over year. Both measures were reported as in line with expectations, but above the Fed’s 2% inflation target. Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the data highlighted that inflation was not coming down to that target. He also characterized the current level as manageable and said growth remained strong.
A separate government report put third-quarter U.S. economic growth at 3.4%. That growth figure offered a counterpoint to inflation concerns, but it did not settle how policymakers will weigh economic activity against persistent price increases. The market’s lower rate-hike probability after the data likewise did not establish what the Fed will do.
Caterpillar shares dropped 9.3%, their biggest one-day fall since March 9, 2020, according to the report. The equipment maker’s earnings rose 45.5% to $7.20 per share, beating analysts’ expectations, while revenue of $20.7 billion was below the $20.8 billion forecast. Oppenheimer analyst Kristen Owen pointed to strong sales across Caterpillar’s businesses, including 75% growth in its Power & Energy segment, which supplies AI data centers.
Rate Decisions And AI Returns Remain Open
The report does not state the calendar date of Thursday’s session, and it does not identify a confirmed Fed decision on rates. Futures pricing gives a snapshot of traders’ expectations, not a guarantee of a December move. It is also unclear from the figures provided how Alphabet’s capital spending will translate into future revenue or when its AI investments may produce returns.
The report provides quarterly results and analyst commentary but does not give additional company guidance on the timing or expected returns of individual AI projects. Nor does it establish whether the slowdown in Search ad growth will continue. Those questions remain relevant to how investors assess the company’s spending, cash flow and earnings outlook.
Investors Await More Earnings And Fed Signals
Investors will continue to compare upcoming corporate results and company outlooks with the expectations reflected in share prices. For Alphabet, attention is likely to remain on Search advertising growth, capital spending, free cash flow and debt as the company reports further results. The reported full-year capex forecast of $195 billion to $205 billion remains the company’s stated range in this account.
Markets will also monitor upcoming inflation and economic data for evidence about price pressures and the Fed’s next move. Traders’ rate expectations may change as new information arrives; the 78% probability cited in the report applies to the market snapshot after Thursday’s data and should not be read as a settled policy outcome.
Key Questions
Why did the Nasdaq fall Thursday?
The Nasdaq fell 1.4% as Alphabet shares dropped 12.6% after the company missed analysts’ estimates for both earnings and revenue. Elevated inflation data also kept interest-rate concerns in focus.
What did Alphabet report for the third quarter?
Alphabet reported $2.67 in earnings per share, down 7% year over year, and revenue of $127.6 billion, up 25%. Both results were below the estimates cited in the report.
What did September inflation data show?
The PCE Price Index rose 0.5% from August and 3.6% year over year. Core PCE rose 0.3% month over month and 3.1% year over year.
Did the market expect a December Fed rate increase?
According to the report, CME Group FedWatch futures pricing showed a 78% probability of a quarter-point increase after Thursday’s data, down from 84% the prior day. This was a market expectation, not a confirmed Fed decision.
Source: kiplinger.com
