Wall Street had a difficult day as major tech companies reported earnings that fell short of expectations, resulting in a significant sell-off in tech stocks.
On October 31, the NASDAQ index dropped by 2.76%, while the S&P 500 saw a decline of 1.86%. This decline was primarily driven by disappointing earnings reports from major tech companies. Microsoft and Meta were particularly affected, with Microsoft's share price falling by over 6% and Meta's shares dropping by 4.1%. Despite both companies reporting strong profit growth for the quarter, the market's focus was on their future outlooks rather than their current financial results. Investors are demanding perfection and robust future projections, especially given the high valuations of these tech firms. This sentiment is leading to a decrease in the market's tolerance for significant spending on artificial intelligence without immediate returns. Even slight indications of slower growth, such as Apple's forecast of low-to-middle single-digit sales growth, contributed to further declines in its stock price.
Contrary to the situation in Wall Street, Japanese equities experienced a rally as the yen weakened after the ruling Liberal Democratic Party (LDP) lost its parliamentary majority for the first time since 2009 in a snap election held on October 27. The yen traded at ¥152.48 against the U.S. dollar, reflecting a 0.4% decline from the previous day, while Japan's Topix index rose by 1.5%. However, concerns remain about potential political paralysis and uncertainty in Japan due to the LDP and its coalition partner, Komeito, seeing a significant drop in their seat count. Further yen weakness could reignite concerns over the "carry trade" that had previously affected global markets. If the yen approaches ¥160 to the dollar, it could prompt intervention from the Ministry of Finance and force the Bank of Japan to tighten its monetary policy. Investors remain cautious about the implications of Japan's political shifts on market stability.
Chinese equities experienced volatility following the announcement of policy measures aimed at bolstering economic growth. The CSI 300 index initially dropped by as much as 7.3% before recovering slightly, while the Hang Seng index in Hong Kong declined by 3.4% but managed to recover somewhat. Investors were disappointed by the lack of significant new fiscal spending initiatives in the policy measures. However, the market's reaction came after a 5% surge driven by optimism surrounding the Chinese government's confidence in achieving its growth targets for 2024. The People's Bank of China (PBOC) had recently unveiled its largest stimulus package since the onset of the COVID-19 pandemic, which included a reduction in reserve requirement ratios and cuts to key policy rates. While the support measures may not be a panacea, they indicate a shift in sentiment favoring growth and suggest a positive outlook for Chinese stocks moving forward.