S&P 500 and Nasdaq: Rising AI Costs Send Microsoft, Meta, and Tech Stocks Lower
Holding this level could create a short-term range bound trade, but breaking through it with conviction will put the 200-day moving average at 5485.33 on the radar.
Megacap Stocks Decline on AI Investment Warnings
Despite topping analysts’ earnings estimates, Microsoft and Meta acknowledged that their escalating AI expenditures might impact future profitability. The companies’ cautions about cost increases put additional weight on other prominent tech names, with Nvidia, Amazon, and Apple all slipping ahead of their own earnings releases. Investors who have fueled a rally in tech this year have grown cautious, questioning whether current valuations can withstand the long-term cost pressures associated with developing and scaling AI technology.
Treasury Yields and Inflation Data Add Pressure
In addition to tech concerns, market sentiment was impacted by rising yields on the 10-year Treasury note, which surpassed 4.3% on Thursday. Higher yields tend to make equities less attractive, especially for sectors dependent on growth. Meanwhile, the Personal Consumption Expenditures (PCE) price index, a key measure of inflation watched closely by the Federal Reserve, met forecasts with a 0.2% increase in September. However, core PCE inflation was marginally higher than anticipated at 2.7%, intensifying speculation around potential Fed policy moves. Some investors are now betting the Fed may opt to pause interest rate cuts, adding a layer of uncertainty to an already cautious market.
Sector Losses and Volatility Rise
Sector-wise, the Information Technology index fell 2.1% as rising costs and concerns over AI profitability took their toll. Estee Lauder plummeted 22% after cutting its dividend and withdrawing 2025 forecasts, while Robinhood and Uber also suffered double-digit declines after underwhelming earnings results. Energy shares were a notable bright spot, with ConocoPhillips lifting the sector by 1% following positive earnings. Overall, the S&P 500 registered more new lows than highs, reflecting a challenging session across multiple sectors.