(Times Of Update) — The latest earnings reports are stoking two concerns that have already been plaguing the U.S. stock market: The euphoria around artificial intelligence has gone too far and consumer spending will, at some point, start to stagnate.
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As headline earnings continue to grow at a healthy pace and bank profits continue to swell, those worries have derailed a stock market rally that, until this month, continued to push major indexes to new records.
The Nasdaq 100 index fell 2.6%, its third straight week of declines, after Alphabet Inc.’s results fueled concerns about how long it will take for investments in artificial intelligence to pay off. Meanwhile, updates from Southwest Airlines Co., United Parcel Service Inc., Whirlpool Corp. fueled concerns about a potential consumer pullback.
That raised the stakes as results continue to be released next week, including those from technology leaders Microsoft Corp., Meta Platforms Inc., Amazon.com Inc. and Apple Inc.
“Next week, the bar is higher than ever and the headwinds are stronger than ever,” said Max Gokhman, senior vice president at Franklin Templeton Investment Solutions.
That sentiment is different from what prevailed for much of this year, when optimism about a soft landing for the economy and investor obsession with all things artificial intelligence pushed the S&P 500 to 38 record highs.
The U.S. economy has held steady on a trajectory, with recent data showing solid economic growth and declining inflationary pressures. That has bolstered bets that the Federal Reserve will start cutting rates sooner than expected, fueling gains in small-cap stocks, which typically carry higher debt burdens.
To be sure, the financial results were punctuated by bright spots. About 69% of S&P 500 companies that have already reported earnings per share above last year’s level, according to data compiled by Times Of Update Intelligence as of Friday morning. Banks beat vendor expectations, while the earnings squeeze for industrial companies may be coming to an end.
Moreover, companies that have reported disappointing numbers have generally not been punished harshly, at least so far. S&P 500 companies that beat forecasts for earnings per share and sales underperformed the S&P 500 index by an average of 1.6% in the day after reporting their results, the lowest level since 2017, according to data compiled by Times Of Update Intelligence.
Banks have exceeded vendor expectations, and the period of profit compression for industrial companies may be coming to an end.
But the scale of the market’s run-up this year has made some investors wary, especially when it comes to big tech companies. Alphabet Inc., Microsoft Corp., Meta Corp. and Amazon.com Inc. have all invested heavily in the promise of artificial intelligence technology, and investors are increasingly wondering how…
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