What comes to mind when you hear the word "correction"? Probably not something positive. That's not surprising, as corrections are usually connected to mistakes or inaccuracies. In investing, a correction is often defined as a 10% or more drop in the price of a security from its recent high. Even though market corrections are usually short-lived, they can be a nerve-wracking experience for many investors.
On Thursday, Nasdaq Composite, Wall Street’s technology-dense index, went down by 1.8% due to a sell-off in tech stocks, pushing it further into what's known as correction territory. It's retreated nearly 14% from its peak in July 2023.
All due to the stocks slide as the latest wave of earnings reports raised questions about the valuations of major tech companies.
The so-called “Magnificent Seven” a term for prominent tech companies, saw their stock prices drop after releasing their earnings. For instance, Alphabet's shares fell nearly 10% after the Google parent reported its quarterly results. Meta's stock slipped by 3% in after-hours trading, even though the Mark Zuckerberg-led tech giant reported significant profits and record sales for the September quarter. Turns out, it wasn’t good enough for investors. Shares of Microsoft tumbled 3.8% on the day, followed by Meta’s drop.
Amazon will likely struggle the same to the weakening outlook for the US economy, though the company reported impressive profits of $9.9 billion, more than triple the figure from a year ago, exceeding the anticipated $6.05 billion. Apple is up next on the earnings calendar, with its report scheduled for the following week, and Nvidia will be the last of the seven companies to report in November.
The market didn't receive any help from the 3Q gross domestic product report, which showed much stronger growth than expected. US GDP expanded at an annualized rate of 4.9% from July through September, surpassing economists' forecasts of 4.7% as polled by Dow Jones. In other words, this growth significantly exceeded the Federal Reserve's target rate of 2%.
Regarding the Federal Reserve, market participants will closely analyze September's Personal Consumption Expenditures price index, or PCE, which is the Fed's preferred measure of inflation. It's expected to show a decrease in the inflation rate to 3.7%, down from the prior month's 3.9%.
