U.S. stock markets closed lower on Thursday terminating a three-day winning run. Disappointing earnings results and guidance by AI-powered corporate behemoths significantly dented market participants' confidence in risky assets like equities. An elevated reading of a key inflation gauge also hurt investors' sentiment. All three major stock indexes ended in negative territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.3% or 132.54 points to close at 52,342.56. However, 23 components of the 30-stock index ended in positive territory, while seven ended in negative territory. The tech-heavy Nasdaq Composite ended at 26,184.72, sliding 1.4% or 365.13 points on weak performance of AI bigwigs.
The S&P 500 shed 0.3% to finish at 7,720.39. However, nine out of 11 sectors of the broad-market index closed in positive territory, while two were in negative territory. The Health Care Select Sector SPDR (XLV) and the Real Estate Select Sector SPDR (XLRE) rallied 2.4% and 2.2%, respectively. On the other hand, the Communication Services Select Sector SPDR (XLC) and the Information Technology Select Sector SPDR declined 1.9% and 1.2%, respectively.
The fear gauge CBOE Volatility Index (VIX) was up 1.7% to 17.20. A total of 17.05 billion shares were traded on Thursday, lower than the last 20-session average of 17.09 billion. Advancers outnumbered decliners by a 1.95-to-1 ratio on the NYSE. On the Nasdaq, a 1.07-to-1 ratio favored advancing issues.
Weak Q3 Earnings Results
Global Internet search engine giant and AI hyperscaler Alphabet Inc.GOOGL reported third-quarter 2026 adjusted earnings of $2.12 per share, missing the Zacks Consensus Estimate by 27.89% and declining 26% year over year. Net revenues, excluding traffic acquisition costs (TAC), increased 27.1% year over year to $111.21 billion, missing the Zacks Consensus Estimate by 0.53%.
Google's search business revenues of $63.4 billion, fell short of the consensus mark of $64.9 billion, raising concerns that the company's flagship search engine business may losing ground to AI-chatbot Claude of Anthropic and ChatGPT of OpenAI.
Moreover, Alphabet incurred a negative free cash flow of $9.1 billion, wider than the consensus estimate of a negative $3.5 billion. This is an alarming signal about whether the company will be able to sustain its massive AI-driven capital expenditure in the future.
Fortinet Inc.FTNT reported third-quarter 2026 non-GAAP earnings per share of 91 cents, which beat the Zacks Consensus Estimate by 7.06% and rose 23% year over year. Total revenues of $2.08 billion beat the consensus mark by 0.79% and increased 20.5% year over year.
However, the AI-powered cybersecurity giant reduced its full-year service revenue forecast to $5.15 billion to $5.17 billion, from its previous guidance of $5.18 billion to $5.22 billion. The new guidance is also below the consensus estimate of $5.2 billion.
ServiceNow Inc.NOW reported third-quarter 2026 non-GAAP earnings of $1.00 per share, up 5.3% year over year. The figure missed the Zacks Consensus Estimate by 1.96%. Revenues of $4.11 billion increased 20.5% year over year and surpassed the consensus mark by 0.46%.
The enterprise AI platforms provider guided that its remaining performance obligations will grow by 18.5% in fourth-quarter 2026, below the street consensus estimate of 19.4%.
Consequently, stock prices of Alphabet, Fortinet and ServiceNow plummeted 12.6%, 20.1% and 27%, respectively. Alphabet and ServiceNow suffered their worst single-day performance in history. Fortinet currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Economic Data
The Department of Labor reported that initial claims decreased by 1,000 to 194,000 for the week ended Oct. 24, below the Zacks Consensus Estimate of 202,000. The previous week's data was revised marginally upward to 195,000 from 194,000 reported earlier.
Continuing claims (those who have already received government aid and reported a week behind) decreased 21,000 to 1.701 million for the week ended Oct.17. The previous week's level was revised downward by 6,000 to 1,722,000 from 1,728,000 reported earlier.
The Bureau of Economic Analysis reported that the U.S. GDP for third-quarter 2026 grew at an annualized rate of 3.4%, beating the Zacks Consensus Estimate of 3.2%. U.S. GDP increased 2.2% in second-quarter 2026.
The Department of Commerce reported that the personal consumption expenditure (PCE) price index — popularly known as PCE inflation — rose 0.5% in September, in line with the consensus estimate. The metric for August was 0.3%. Year over year, the headline PCE inflation rose 3.6% in September.
Core PCE inflation (Excluding volatile food and energy items) — the Fed's favorite inflation gauge — rose 0.3% in September, lower than the consensus estimate of 0.4%. The metric for August was revised upward to 0.3% from 0.2% reported earlier. Year over year, core PCE inflation rose 3.1% in September.
Personal income rose 0.2% in September, below the Zacks Consensus Estimate of 0.4%. The metric for August was revised upward to 0.3% from 0.2% reported earlier. Personal spending rose 0.5% in September, below the Zacks Consensus Estimate of 0.6%. The metric for August was 0.9%. Personal savings rate in September came in at 3.8%. The metric for August was revised downward to 4% from 4.1% reported earlier.
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This article originally published on Zacks Investment Research (zacks.com).
