By Pranav Kashyap and Nikhil Sharma
(Reuters) – The S&P 500 and Nasdaq dropped on Thursday, as Meta and Microsoft fell on worries over surging AI spending, rattling investors already anxious about the U.S. Federal Reserve’s pace of monetary policy easing.
Meta plunged 11.8% and was set for its biggest percentage drop in three years after the Instagram-parent forecast “notably larger” capital expenses next year, thanks to investments in artificial intelligence.
Microsoft dipped 3.5% after the tech giant reported a record capital expenditure of nearly $35 billion for its fiscal first quarter and warned that spending would rise this year.
“We’re having a reset given the high expectations for the Fed and tech earnings were both called into question overnight,” said Ben Laidler, head of equity strategy at Bradesco BBI.
The pullback comes after the three major indexes notched record highs in the past four sessions, lifted by strong quarterly earnings and growing expectations of a more accommodative monetary policy stance.
On Wednesday, stocks got an extra lift after AI chip designer Nvidia became the first publicly listed company to surpass $5 trillion in market capitalization.
Of the 222 S&P 500 companies that have reported so far, 84.2% have beaten earnings estimates as of Wednesday, according to LSEG data. That’s above the 77% average over the past four quarters.
Investor focus is now on results from fellow “Magnificent Seven” members Apple and Amazon, which are due after the closing bell.
Google-parent Alphabet jumped 4.9% as steady growth in the advertising business and cloud computing powered better-than-expected results.
Optimism around AI has been a key driver of the bull run in U.S. stocks this year, with the top tech companies collectively accounting for 35% of the weight of the S&P 500.
At 11:48 a.m., the Dow Jones Industrial Average rose 190.04 points, or 0.40%, to 47,822.04, the S&P 500 lost 34.43 points, or 0.50%, to 6,855.82 and the Nasdaq Composite lost 272.88 points, or 1.14%, to 23,685.59.
FED OUTLOOK CLOUDED
The Federal Reserve delivered a widely expected quarter-point rate cut on Wednesday, but it also raised doubts over future policy action by saying another cut in December was not a “foregone conclusion”.
Traders quickly pared back the odds of another similar‑sized move in December to about 70%, down from roughly 90% earlier in the week.
U.S.-CHINA TRADE TRUCE
Meanwhile, a freshly announced trade agreement between U.S. President Donald Trump and Chinese President Xi Jinping did little to improve the overall sentiment.
Trump agreed to roll back some tariffs on Chinese imports in exchange for Beijing resuming soybean purchases, keeping rare earth exports flowing, and cracking down on fentanyl trafficking.
OTHER MARKET MOVERS
Among other movers, drug distributor Cardinal Health climbed 13.3% after raising its annual adjusted profit forecast.
Chipotle Mexican Grill tumbled over 15.5% after the burrito chain axed its annual sales forecast, with tariffs and inflation squeezing margins.
Declining issues outnumbered advancers by a 1.21-to-1 ratio on the NYSE, and by a 1.23-to-1 ratio on the Nasdaq.
The S&P 500 posted 30 new 52-week highs and 30 new lows, while the Nasdaq Composite recorded 67 new highs and 141 new lows.
(Reporting by Pranav Kashyap and Nikhil Sharma in Bengaluru; Editing by Krishna Chandra Eluri and Shinjini Ganguli)
