ASX set to retreat, tech giants weigh down Wall Street

Stocks are falling on Wall Street as investors pore over another batch of earnings reports from US companies.

The S&P 500 dropped 1.1 per cent. The Dow Jones fell 421 points, or 0.9 per cent, in early afternoon trade. The Nasdaq composite fell 1.8 per cent. The Australian sharemarket is set to retreat, with futures pointing for a loss of 24 points, or 0.3 per cent, at the open. The ASX added 0.3 per cent on Thursday. The Australian dollar was trading at US64.76¢ at 5.16am AEDT.

Corporate earnings and forecasts have been the big focus all week.Credit: AP

Technology stocks were the heaviest weights on Wall Street, especially companies with huge values that give them outsize influence over the broader market’s direction. Nvidia fell 4.2 per cent and Microsoft slipped 1.9 per cent. Amazon fell 2.4 per cent.

Corporate earnings and forecasts have been the big focus all week. The latest round of results and statements from executives could help shed some light on the condition and path ahead for the economy amid a lack of broader information on inflation, employment and retail sales because of the ongoing government shutdown.

DoorDash sank 15.2 per cent for one of the sharpest drops on Wall Street. The food delivery app warned investors that it will be spending significantly more on product development next year.

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Software company Datadog jumped 20.1 per cent after its latest earnings beat analysts’ forecasts. Rockwell Automation rose 3.9 per cent after turning in results that easily beat analysts’ forecasts.

It has been a wobbly week for major indexes, which set record highs last week. The broader stock market has had a record-setting year, but that has raised worries that stocks could be overvalued. Those concerns are even more focused on big technology companies that have been leading the market higher amid the focus on artificial intelligence advancements.

The latest round of earnings is being closely monitored to gauge whether the stock market’s big values are justified. The results are also helping to fill in gaps in information because of the US government shutdown, which is now the longest on record.

Another week of unemployment data was missing Thursday because of the shutdown. It has already resulted in a lack of monthly employment data for September and will likely result in missing employment data for October, along with a lack of data on consumer prices for October.

Outside of company updates, Wall Street is relying more on economic updates from other private sources. Private payrolls rose more than expected in October, according to a report Wednesday from ADP, and the services sector expanded in October, according to the Institute for Supply Management. The data can vary widely, however.

Job cuts in the US surged 175 per cent in October from a year ago, according to a report released Thursday from outplacement firm Challenger, Gray & Christmas. The reasons include softer consumer and corporate spending, rising costs, and the adoption of artificial intelligence.

The absence of updates on the job market and inflation has left the Federal Reserve in the dark at the same time that employment was weakening and inflation heating up. That leaves the central bank in a tough spot. It has to decide whether cutting its benchmark interest rate to counter the economic impact from a weaker job market is worth the risk of worsening inflation.

Lower interest rates can help stimulate the economy by making loans less expensive, but they can also fuel inflation.

“We anticipate the Fed will continue to implement rate cuts to prevent any weakness in employment from accelerating,” said Seema Shah, chief global strategist at Principal Asset Management. “Much of the market’s optimism hinges on the assumption that policymakers will maintain some level of support.”

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The Fed has already cut its benchmark interest rate twice this year. It has signaled more caution as it tries to navigate the risks to the economy. Wall Street is forecasting a 69 per cent chance that the central bank cuts interest rates in December, according to CME FedWatch. That’s down from more than 90 per cent just prior to the most recent interest rate cut.

The US government shutdown is having a direct impact on airlines, as airports face critical staffing problems. The Federal Aviation Administration will reduce air traffic by 10 per cent starting Friday across 40 “high-volume” markets. American Airlines fell 2.1 per cent, Delta Air Lines fell 1.6 per cent and United Airlines fell 1.9 per cent.

European markets fell after a divided Bank of England kept its main interest rate unchanged. Asian markets closed higher.

Treasury yields moved lower in the bond market. The yield on the 10-year Treasury fell to 4.09 per cent from 4.16 per cent late on Wednesday. The yield on the two-year Treasury fell to 3.56 per cent from 3.63 per cent late on Wednesday.

AP

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