Stocks of big technology companies slid yesterday while US GDP for Q3 showed a growth of 4.9%, which is higher than expected. Treasury bond yields also fell slightly and the majority of the market estimates that the Fed has ended its rate rising cycle.
US Q3 GDP higher than expected
Despite the strength of the US economic data, the stock market was negatively impacted by the decline of some of the largest technology companies yesterday. Treasury bond yields also slightly declined from their highest levels of the previous day. The Q3 Gross Domestic Product (GDP) grew by 4.9% from the previous quarter, which was higher than economists had predicted.
Although swap contracts predict a less than 50% chance of another rate hike by the Federal Reserve (Fed) in the current cycle, the most widely held belief in the market is that the Fed has finished the cycle of rate hikes. As a result, Treasury bond yields would be capped at present levels.
The Nasdaq 100 fell into negative territory yesterday
The Nasdaq 100 moved into negative territory throughout the session as Meta Platforms Inc. plunged after dashing investors' hopes for a recovery in advertising revenue.
Meta Platforms fell 6% during yesterday's session as, in addition, Facebook's parent company announced spending for 2024 above estimates. It also suggested that the conflict in the Middle East could slow fourth quarter sales.
Elsewhere, Google parent Alphabet lost 3%, adding to its 9.5% decline on Wednesday after it reported disappointing cloud services revenue.
In short, a still weak stock market is being pressured by poor results of technological stocks and geopolitical uncertainty from the tension in the Middle East.
Fed predicted to follow in the ECB’s footsteps and keep rates stable
What seems to be clearer is the interest rate scenario. The market is betting on the end of the Fed's rate hikes, as reflected in the federal funds futures market.
Yesterday the European Central Bank (ECB) ended the longest run of rate hikes in its 25-year history. The bank backed up its decision by saying that the most recent data still points to inflation slowly falling to its 2% target.
According to the ECB, if interest rates stay at their current level for an extended period of time, they might be enough to contain inflation.
This could be interpreted as a clear sign that the ECB has also finished raising rates and this could contribute to better stock market performance for the remainder of the year.
Meta monthly chart, October 27, 2023. Source: CAPEX.com WebTrader.
Key Takeaways
- Treasury bond yields slightly fell yesterday from Wednesday’s highs.
- US Q3 GDP grew 4.9% from the previous quarter.
- Markets now bet on the Fed keeping interest rates stable.
- Stock performances of Meta and Alphabet dragged the Nasdaq 100 into negative territory.
- Meta said the conflict in the Middle East could slow its fourth quarter sales.
- The ECB left interest rates stable yesterday.
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Sources: Bloomberg, Reuters
