Nasdaq Drops 365 Points on Big Alphabet Miss: Stock Market Today
Economic data and earnings reports drove Thursday's price action, with sharp drops for a pair of blue chips dragging the broader stock market lower.
Stocks opened lower Thursday and stayed there through the close as market participants wondered what another hot inflation reading means for a December rate hike. The latest batch of corporate earnings also kept a lid on sentiment, with a rare miss from Google's parent, Alphabet (GOOGL), sending the mega-cap stock sharply lower — and renewing fears over big AI spending.
At the close, the tech-heavy Nasdaq Composite was down 1.4% at 26,184, the broader S&P 500 was off 0.3% at 7,720, and the blue-chip Dow Jones Industrial Average was 0.3% lower at 52,342.
Alphabet created a massive drag on the three main equity benchmarks, shedding 12.6% — its worst day ever — after the Google parent unveiled its third-quarter results.
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GOOGL reported earnings of $2.67 per share, down 7% year over year, on revenue of $127.6 billion (+25% YoY). The results fell short of Wall Street's estimates for earnings of $3.00 per share on $127.9 billion in revenue, and marked the company's first double miss since Q4 2022.
Alphabet also reported negative free cash flow of $9.07 billion and Q3 capital expenditures of $51.4 billion. The company maintained its full-year capex forecast of $195 billion to $205 billion.
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Long-term debt, meanwhile, jumped to $125.1 billion from $21.6 billion the year prior, signaling a sharp rise in borrowing to fund its AI initiatives.
The quarter-over-quarter slowdown in Search ad revenue growth (+12% YoY in Q3 vs +17% YoY in Q2) outweighs all other points in the print, says Wedbush analyst Ygal Arounian. Worries over free cash flow and spending also weighed on the stock.
But Arounian, who has an Outperform (Buy) rating on Alphabet, believes the company is "well positioned, with a strong ecosystem that, yes, is evolving, but with the pieces in place to capitalize." And Google, he adds, "will prove a winner as AI advertising evolves."
Caterpillar stock has its worst day in six years
Alphabet was the worst Dow Jones stock today, but Caterpillar (CAT) came in a close second. The blue chip stock sank 9.3% — its biggest one-day decline since March 9, 2020 — after the construction equipment maker reported its Q3 results.
CAT said earnings grew 45.5% year over year to $7.20 per share, more than analysts expected. But revenue of $20.7 billion (+17% YoY) fell short of the $20.8 billion Wall Street called for.
"Results reflected strong sales to users across all three primary businesses, led by 75% growth in" its Power & Energy segment, says Oppenheimer analyst Kristen Owen. This division, which supplies AI data centers, has seen impressive growth in recent quarters.
"On the outlook, CAT called for moderate year-over-year growth in Q4 despite difficult YoY comps and change in dealer inventory headwinds, supporting its unchanged mid-to-high teens FY26 revenue growth expectation," Owen adds.
September PCE shows inflation remains elevated
Wall Street also kept a close eye on today's economic calendar. In the wake of what many are describing as a hawkish pause from the Federal Reserve at its October meeting, data from the Bureau of Economic Analysis (BEA) showed the Personal Consumption Expenditures (PCE) Price Index — the central bank's preferred inflation gauge — rose 0.5% from August to September. PCE was up 3.6% year over year.
Core PCE, which excludes volatile food and energy prices, increased 0.3% month over month and was 3.1% higher than the year-ago period.
"Although the inflation data came in line with expectations, because it is higher than the prior month, it emphasizes the problem we face — inflation is not coming down to the 2% target," says Chris Zaccarelli, chief investment officer for Northlight Asset Management.
Still, he says the current inflation level "isn't terrible; it will just require slightly higher interest rates. And despite all of this, growth is very good." Indeed, a separate BEA report showed the U.S. economy grew 3.4% in the third quarter.
Expectations for a December rate hike fell slightly after Thursday's economic data. CME Group FedWatch shows futures traders are pricing in a 78% probability the Fed will increase the federal funds rate by a quarter-percentage point in December, down from 84% one day ago.
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