Halloween seems to have arrived a little early this week. The week started on a positive note but the optimism did not last. By Friday, technology stocks were under pressure as investors began questioning the enormous sums being poured into AI and more importantly, when all this spending will translate into meaningful profits.
Alphabet’s disappointing results, followed by Amazon’s earnings miss and Intel’s weaker guidance, added to the selling pressure. The Nasdaq fell more than 2% during Friday’s morning session.
Elsewhere, the Fed kept interest rates unchanged at 3.75%–4.00%. US GDP grew at an annualised 3.4% in the third quarter, while PCE inflation accelerated to 3.6% year on year. A resilient economy is certainly welcome but stubborn inflation leaves the Fed in a difficult position. Interestingly, Treasury yields moved lower as investors sought some shelter amid the technology selloff.
I would expect volatility to persist in the lead-up to the US midterm elections next week with political uncertainty likely to keep investors on their toes. Historically, however, election-related uncertainty tends to be relatively short-lived and markets often regain their footing once the results are known.
On this Halloween day, perhaps the real trick is telling the difference between a genuine opportunity and an expensive surprise. I will be reviewing the markets over the weekend and sending my notes to partners. Happy Halloween and hopefully no nasty surprises in our portfolios!