S&P 500 ends at lowest since May as Nasdaq slides deep into correction territory on disappointing earnings

What drove markets

A preliminary reading on third-quarter U.S. GDP came in hotter than expected on Thursday morning, with data from the Commerce Department showing the economy grew at an annualized pace of 4.9%, surpassing the 4.7% pace that Wall Street had expected.

Consumer spending, the main engine of U.S. growth, rose at a 4% clip from July to September, the government said Thursday.

Callie Cox, a U.S. equity strategist at eToro, said the latest data should help assuage concerns about an imminent recession in the U.S., although an economic downturn remains a possibility.

“The U.S. economy was incredibly resilient last quarter. Growth was spectacular, mainly due to how much money Americans spent,” Cox said.

“Consumer spending had its biggest contribution to economic growth since the end of 2021, and inventories grew as retailers scrambled to meet demand. It’s hard to say we’re in — or even near — a recession with this kind of GDP print,” Cox said.

Also read: Q3 GDP: Live coverage of data showing 4.9% growth

While the backward-looking GDP report came in stronger than expected, it remains to be seen whether the consumer can maintain resiliency in the coming quarters, economists said.

“Investors should not be surprised that the consumer was spending in the final months of the summer — the real question is if the trend can continue in the coming quarters, and we think not,” said Jeffrey Roach, chief economist at LPL Financial.

He said it was too early to be dogmatic about the final quarter of the year, but that investors should expect some deceleration in momentum.

See: The Nasdaq just fell into a correction. Now what?

Meanwhile, poorly received earnings reports from some of the biggest U.S. technology companies continued to weigh on the market.

This time, Facebook parent Meta Platforms Inc.
META,
-3.73%
was the latest “Magnificent Seven” company to release disappointing results, following Alphabet Inc.
GOOG,
-2.55%
and Tesla Inc.
TSLA,
-3.14%.

Next up on the big-tech earnings docket is Amazon.com
AMZN,
-1.50%,
which will report after Thursday’s close. Chipotle Mexican Grill Inc.
CMG,
-1.92%,
Intel Corp.
INTC,
-0.94%
and Ford Motor Co.
F,
-1.65%
are also set to report after the closing bell.

See: ‘Can’t take recession for granted’ after GDP data: Traders see 2024 Fed rate cuts anyway.

U.S. Treasury yields also slipped on Thursday, with the 10-year rate
BX:TMUBMUSD10Y
down 10.9 basis points to 4.843%, after briefly topping 5% for the first time since 2007 earlier this week.

Steve Sosnick, the chief strategist at Interactive Brokers, said the retreat in Treasury yields was less about the speculation around the GDP number and more about the reaffirmation from global central banks that they “are not really trying to raise rates aggressively from here on out.”

The European Central Bank on Thursday paused on interest-rate hikes for the first time since summer 2022, while the Bank of Canada Wednesday kept benchmark rates unchanged for a second straight meeting, saying steeper borrowing costs are dampening consumption and bringing supply and demand closer to balance.

“I think that the rhetoric out of the ECB and the Bank of Canada, and what I would expect from the Fed next week, is that they reiterate the idea of keeping rates elevated for longer even if there’s no plans to raise them anytime soon,” Sosnick told MarketWatch via phone.

Fed-funds futures traders continued to expect no change in policy rates at next week’s Federal Reserve policy meeting, according to the CME FedWatch tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in December was seen at 19.7% on Thursday, down from 27.3% in the previous session.

See: Yellen says she doesn’t see signs of recession after GDP report

In other news, the United Auto Workers said it reached an agreement to end the strike at Ford. Investors also digested data on weekly jobless claims, which rose by 10,000 to 210,000 but remained relatively low, a sign that companies continue to hang onto workers.

Companies in focus

Meta Platforms Inc.
META,
-3.73%
shares finished 3.7% lower on Thursday after the firm’s CFO warned of slower advertising revenues in the fourth quarter, following the publication of analyst-beating results in the third quarter that showed rising digital-advertising revenue.

• Mattel Inc.’s stock
  MAT,
  -7.61%
  fell 7.6% even as the toy maker beat analysts’ expectations in the third quarter after warning of slower demand during the holiday season.

• Ford Motor Co.’s
  F,
  -1.65%
  stock dropped 1.7% as the United Auto Workers said it reached a pay deal with the automaker, which also reports results after the closing bell.

• IBM’s stock
  IBM,
  +4.87%
  rose 4.9% as the technology giant’s results came in ahead of forecast.

• United Parcel Service Inc.’s stock
  UPS,
  -5.93%
  was off 5.9% after the package-delivery giant extended its quarterly streak of revenue misses and cut its full-year outlook.

• Mastercard Inc. shares 
  MA,
  -5.62%
  tumbled 5.6% after the company beat earnings expectations but warned about a slowdown in spending growth in the U.S. and internationally.