S&P 500 falls into correction as market sell-off continues | Bing

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Oct. 28, 2023 (Bing) -- The S&P 500 index closed in correction territory Friday, ending a week of volatility driven by disappointing earnings reports and strong economic data.

The index dropped 0.5 percent, marking a more than 10 percent decline from its most recent peak in July. The Dow Jones Industrial Average also tumbled 367 points, or 1.1 percent, while the Nasdaq Composite managed to gain 0.4 percent.

The market sell-off was triggered by a series of mixed earnings reports from major tech companies, such as Alphabet, Meta Platforms (formerly Facebook), and Amazon. While Amazon beat analysts' expectations for its third-quarter results, its shares had plunged earlier in the week after warning of slower revenue growth and higher costs. Alphabet and Meta Platforms also reported lower-than-expected revenue growth, sparking concerns about the impact of regulatory scrutiny and competition on their businesses.

The tech sector, which has been a key driver of the market rally this year, dragged the Nasdaq Composite into correction territory on Wednesday, its worst day since February. The index has fallen more than 11 percent from its record high in September.

The market mood was also dampened by some disappointing earnings from other sectors, such as energy and automotive. Chevron and ExxonMobil both missed analysts' estimates for their third-quarter profits, as higher oil prices failed to offset the effects of Hurricane Ida and lower production. Ford Motors also reported lower-than-expected earnings and withdrew its full-year guidance due to the uncertainty caused by the United Auto Workers' strike, which was resolved earlier this week.

On the other hand, the market sell-off was contrasted by some positive economic data, which showed that the U.S. economy remains resilient despite the challenges posed by the Covid-19 pandemic and supply chain disruptions. The Commerce Department reported on Thursday that the gross domestic product (GDP), a measure of all goods and services produced in the U.S. economy, grew at an annualized rate of 4.9 percent in the third quarter, well above the second quarter's pace of 2.1 percent and economists' expectations of 4.3 percent.

The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, also showed some signs of easing price pressures. The core PCE index, which excludes food and energy prices, rose 3.7 percent year-over-year in September, its smallest increase since May. The index rose 0.3 percent month-over-month, slightly higher than the 0.1 percent rate seen in August.

The strong economic data raised expectations that the Fed will announce a tapering of its monthly bond purchases at its policy meeting next week, as part of its plan to normalize its monetary policy amid the economic recovery. The Fed has been buying $120 billion worth of Treasury and mortgage-backed securities every month since March 2020 to support the financial markets and keep interest rates low.

However, some analysts believe that the market sell-off is a normal correction that reflects a healthy adjustment of valuations and expectations after a prolonged period of gains. They argue that the fundamentals of the U.S. economy and corporate earnings remain solid and that the correction could create buying opportunities for long-term investors.

According to CNBC⁵, Michael Burry, the hedge fund manager who predicted the housing bubble and inspired the movie "The Big Short," took a victory lap on Twitter after calling the tech-led market correction. He wrote: "I warned you all about this bubble for months now... Now you see why I was so bearish."

Meanwhile, Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has often said that he welcomes market corrections as a chance to buy quality stocks at lower prices. In his 2018 letter to shareholders, he wrote: "Charlie [Munger] and I view market declines as an opportunity to increase our ownership of great businesses at attractive prices.".

Source: Conversation with Bing, 10/28/2023
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(2) Dow drops more than 350 points to end brutal week, S&P 500 closes in correction territory: Live updates. https://www.cnbc.com/2023/10/26/stock-market-today-live-updates.html.
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(4) The S&P 500 Falls Into a Correction, Following the Nasdaq Composite. https://www.wsj.com/livecoverage/stock-market-today-dow-jones-10-27-2023/card/the-nasdaq-composite-is-on-track-to-enter-a-correction-btCPOJVi7uczdASFmhlr.
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