The stock market pulled back from record highs and fell on Wednesday as the rally driven by third-quarter earnings began to lose steam, although the S&P 500 remains on track for its best month since November 2020.
The Dow Jones Industrial Average and S&P 500 declined by 0.7% and 0.5%, respectively, on Wednesday, while the tech-heavy Nasdaq Composite was flat.
The Dow and S&P 500 both fell for the first time in at least three days, despite a recent earnings-driven rally that has boosted the market to new record highs.
The S&P 500 remains on track for its best month since November 2020, rising by more than 5% so far in October, while the Dow is up around 4%.
Third-quarter earnings have so far proved more resilient than expected, despite concerns about inflationary pressures, supply chain disruptions and labor shortages: Just over a third of S&P 500 companies have reported results so far, with 83% of them topping estimates, according to Refinitiv.
Big tech stocks like Microsoft and Google-parent Alphabet rose by more than 4% after both companies topped earnings estimates on Tuesday, while shares of Visa fell nearly 7% after issuing a conservative revenue outlook.
Shares of popular stock trading app Robinhood, meanwhile, fell more than 10% on Wednesday after reporting earnings that substantially missed expectations because of a sharp drop in crypto trading.
Today was actually “one of the most tumultuous, brutal, and frustrating sessions in a long time,” as most sectors suffered losses—with the biggest declines coming from financials and energy stocks, says Vital Knowledge founder Adam Crisafulli. “The overall market was very soft in the U.S., although this was somewhat masked by huge post-earnings rallies in Google and Microsoft.” The market sank late in the session, he points out, after Democrats suffered another setback in their efforts to reach a deal on the government spending bill.
As Democrats continue to iron out the details of their massive social spending plan—and how to pay for it, a newly proposed billionaire wealth tax was immediately shot down on Wednesday. Moderate Sen. Joe Manchin (D-W.V.), whose support is crucial for Democrats to pass legislation in the evenly split Senate, voiced concerns—effectively killing the proposal mere hours after its release.
What To Watch For:
“The Nasdaq continues to outperform following robust mega-cap tech results and as Democrats struggle to find ways to increase taxes—Kryptonite for big-tech has always been raising taxes and regulation,” says Oanda senior market analyst Edward Maya. “With Senator Joe Manchin showing little openness for tax increases, tech stocks are soaring.”