A blowout reading on third-quarter gross domestic product (GDP) did little to lift investor sentiment Thursday, with a slow start for stocks turning into a dismal finish. Not helping matters was a round of disappointing corporate earnings – most notably from Facebook parent Meta Platforms (META).
Ahead of the open, data from the Bureau of Economic Analysis showed the U.S. economy grew at a 4.9% annualized rate in the third quarter – the fastest pace since Q4 2021 and higher than the 4.7% increase economists were expecting.
"Wall Street was anticipating today's third-quarter GDP report to be a monster print, but the figure arrived even hotter than expectations," says José Torres, senior economist at Interactive Brokers. "The report showed persistent consumer spending, which is anchoring hawkish monetary policy expectations despite the data providing favorable inflation news."
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Tomorrow, investors will get another look at consumer spending with the early morning release of the September personal consumption and expenditures (PCE) index – the Fed's preferred measure of inflation. And all of this data comes ahead of next week's Fed meeting. According to CME Group, futures traders are pricing in a 96% chance the central bank will hold interest rates steady when it concludes its gathering next Wednesday afternoon.
Meta stock slumps after Q4 ad spending warning
Earnings were also in focus, with Meta Platforms one of the more noteworthy reports. The social media giant said third-quarter earnings were up 168% year-over-year to $4.39 per share, while revenue jumped 23% to $34.1 billion. Both figures were higher than what analysts were expecting.
However, what concerns investors – and what sent the mega-cap stock down 3.7% today – was a warning from Susan Li, chief financial officer of Meta, who said on the earnings call that the company has "observed softer ad spend in the beginning of the fourth quarter" amid rising geopolitical tensions in the Middle East.
"While Middle East tensions create some near-term uncertainty, greater artificial intelligence (AI) emphasis and Reels momentum are supporting engagement and digital ad share gains," says CFRA Research analyst Angelo Zino, who kept a Buy rating on META. "Business messaging/AI agents remain major long-term opportunities."
Invisalign maker spirals, but analysts remain bullish
Elsewhere, Align Technologies (ALGN) plummeted 24.9% after the Invisalign maker reported lower-than-expected third-quarter earnings and revenue. The company also lowered its full-year revenue guidance, citing "a more challenging macroeconomic environment for doctors and patients with fewer orthodontic case starts overall."
Shares are now down nearly 10% for the year-to-date, but Wall Street remains overwhelmingly bullish on the healthcare stock. This is evidenced by a consensus Buy recommendation among the 16 analysts following ALGN tracked by S&P Global Market Intelligence.
"Clearly, the macro picture is challenging right now, with a litany of demand headwinds (gas prices, student loans, geopolitical), none of which seem likely to abate very soon," says Jefferies analyst Brandon Couillard, who maintained a Buy rating on ALGN after earnings. Over the long term, though, Couillard believes Align will gain market share and eventually return to 15% organic revenue growth and improved profitability.
IBM jumps on Q3 beat
Not all of today's earnings were poorly received. International Business Machines (IBM) jumped 4.9% after the computer maker swung to a third-quarter profit of $2.20 per share – more than analysts were anticipating. Revenue of $14.8 billion also beat estimates. Growth in the company's AI initiatives and cloud solutions helped fuel the results.
As for the main indexes, the tech-heavy Nasdaq Composite was hit the hardest, slumping 1.8% to 12,595. The S&P 500 ended the day down 1.2% at 4,137, while the Dow Jones Industrial Average fell 0.8% to 32,784.
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