[US Stocks] Nasdaq falls 1.38% as massive tech earnings highlight capital expenditure burdens; funds shift to small-cap stocks, pushing Russell 2000 up over 1% (October 29)
On October 29, the three major US stock indices all fell for the first time in four trading days. Following earnings reports from major technology companies released after the previous day’s close, concerns over AI-related capital expenditure burdens and cloud growth rate forecasts weighed on the market. The tech-heavy Nasdaq fell significantly, down 365.13 points (1.38%) to 26,184.72. The S&P 500 also closed down 0.30% at 7,720.39, and the NY Dow fell $132.54 (0.25%) to 52,342.56. Meanwhile, the Russell 2000 index of domestic and small-cap stocks rose 1.01% to 2,859.22, marking its fourth consecutive day of gains, as a clear shift of funds from large-cap tech stocks to small-cap and financial stocks took place.
On the macro front, the preliminary US real GDP for the July-September quarter, the September Personal Consumption Expenditures (PCE) price index, and weekly initial jobless claims released in the morning reaffirmed the resilience of the US economy and personal consumption in a high-interest-rate environment, as well as the stickiness of inflation. The US 10-year Treasury yield, which had recovered to the 5% level after the FOMC meeting the previous day, remained flat at 5.045% after digesting the key indicators, leading to calm movements in the bond market without further sharp spikes. With the surge in interest rates avoided, buying driven by the strength of the real economy flowed into cyclical stocks and regional financial institutions.
In the stock market, concerns over the profitability of AI infrastructure investment were reignited following earnings from Microsoft and Meta Platforms, leading to profit-taking across semiconductors and large-cap growth stocks. On the other hand, the financial sector supported the market, with the regional bank ETF (KRE) rebounding by over 1%, keeping the declines in the S&P 500 and NY Dow limited. Investors are accelerating rebalancing across sectors as they attempt to gauge the profitability of AI investments and the trend of high long-term interest rates.
📊 Market Summary (2026/10/29 Close)
NY Dow: 52,342.56 (Change: -132.54 / -0.25%)
S&P 500: 7,720.39 (Change: -23.59 / -0.30%)
Nasdaq: 26,184.72 (Change: -365.13 / -1.38%)
Russell 2000: 2,859.22 (Change: +28.71 / +1.01%)
10-Year Treasury Yield: 5.045%
USD/JPY: 157.71 yen
⚠️ Risk Indicators
VIX: 17.20
HYG: 77.58
KRE: 72.86
PCR: 0.90 (Total)
Fear & Greed: 35
Market Trend Highlights:
❌️ Factors for Decline
❌️ Concerns over increased AI capital expenditure burdens reignited following Microsoft and Meta earnings
Although Microsoft and Meta Platforms, which announced earnings after the previous day’s close, showed solid current performance, their massive capital expenditure plans and cost increase forecasts associated with AI data center expansion raised concerns. Worries regarding the growth pace of their cloud divisions and the payback period for AI investments led to significant selling in both stocks, which spilled over into AI and semiconductor-related stocks such as Nvidia. The optimism that had been boosted by Alphabet’s strong earnings the previous day receded, serving as the primary factor pushing the Nasdaq down 1.38%.
❌️ US long-term interest rates remain high at 5.045% after digesting September PCE and GDP
The preliminary July-September real GDP, September PCE price index, and initial jobless claims released in the morning showed the resilience of personal consumption and the labor market, as well as persistent price pressures. Although the US 10-year Treasury yield remained flat from the previous day at 5.045%, it remained stuck above the psychological threshold of 5%, acting as downward pressure on high-P/E growth stocks through higher discount rates. The view that the Fed’s high-interest-rate policy will be prolonged was reaffirmed, acting as a factor capping the upside for tech stocks.
❌️ Position-adjustment selling ahead of the weekend and subsequent corporate earnings
With the three major indices rising for three consecutive trading days earlier this week and having passed a series of key events such as the FOMC, GDP, and PCE, profit-taking to reduce risk became dominant across major stocks. Ahead of the weekend, adjustment selling also appeared in some Dow components and the capital goods sector. The volatility index (VIX) rebounded for the first time in four trading days from 16.91 to 17.20, and the put-call ratio (PCR) remained at a high level of 0.90, indicating continued hedging demand.
⭕️ Factors for Rise
⭕️ Russell 2000 rises over 1% for 4th consecutive day, favored by resilience in personal consumption and the US economy
Following the confirmation of the strength of domestic demand and personal consumption through the preliminary GDP and PCE data, funds flowed into small-cap stocks with high correlation to the domestic economy, pushing the Russell 2000 up 1.01% to 2,859.22 for its fourth consecutive day of gains. Small-cap value stocks were favored as a destination for funds flowing out of massive tech stocks, showing strong price action that broke through the recovery highs seen since mid-month. The concentration in large-cap growth stocks was corrected, and sector rotation that broadened the market base supported the overall market floor.
⭕️ Rebound in regional bank stocks and stable credit market environment
Triggered by the pause in the rise of the US 10-year Treasury yield following the release of key economic indicators, regional financial stocks saw renewed buying, with the regional bank ETF (KRE) rebounding about 1.0% from 72.11 to 72.86, hitting a recent high. In the corporate bond market, the high-yield bond ETF (HYG) remained at a high level of 77.58, almost unchanged from the previous day (77.59), indicating that concerns over corporate credit risk remain extremely calm. The steady performance of the financial sector acted as a buffer, limiting the decline of the S&P 500 to 0.30% despite the sharp drop in technology stocks.
⭕️ Resilience in investor sentiment and avoidance of panic selling
Despite the Nasdaq falling over 1%, the Fear & Greed index, which indicates investor sentiment, remained resilient at 35 (a slight increase from 34.4 to 34.6 the previous day), avoiding a deterioration in overall market sentiment. The VIX index also saw only a small rise to 17.20, not reaching the panic-driven risk-off levels near 20 seen the previous week. While the cost burden of AI-related investments is being disliked, there is strong selective buying interest in high-performing value stocks and domestic demand stocks, maintaining the overall market tone.
Outlook:
As the July-September earnings season continues, the earnings announcements of major technology companies, energy, and consumer goods sectors will continue to influence the market’s direction. The market’s scrutiny regarding whether massive capital investment in AI infrastructure is commensurate with actual profit growth is becoming increasingly strict, and the full-year guidance and profit margin trends presented by each company will be the ultimate litmus test. The focus is on whether the correction in tech stocks will run its course or if sector rotation into small-cap and value stocks will accelerate further.
Regarding economic indicators and monetary policy, with the FOMC, GDP, and September PCE price index announcements behind us, the market’s focus shifts to the October ISM manufacturing and non-manufacturing indices to be released next week and the October US employment report on November 6. Whether the US 10-year Treasury yield, currently at 5.045%, will settle in the 5% range or fall back below 5% due to month-end rebalancing demand will influence stock valuations. If next week’s labor market data shows wage inflation or signs of an overheating labor market, there is a risk that long-term interest rates will rise further; conversely, if moderate deceleration is confirmed, it will be a tailwind for the stock market as a whole.
In terms of geopolitics and the external environment, the trend of crude oil prices against the backdrop of the Middle East situation and the Russia-Ukraine situation will continue to be closely watched for both energy costs and inflation expectations. Additionally, fluctuations in the USD/JPY exchange rate, which is hovering in the high 157 yen range, and bond yields in various countries, combined with month-end/month-start specific fund flows, could be factors that increase market volatility. The three points to confirm are: subsequent major corporate earnings and AI investment profitability, economic indicators leading up to next week’s employment report, and the trend of the US 10-year Treasury yield.
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