Morning in New York: Clouds Are Gathering Over the Market

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The main factor driving the session will be the market’s reaction to Amazon’s (AMZN) earnings report. Revenue from the company’s cloud business (AWS) rose 39% year-over-year—the fastest growth rate in nearly five years. However, free cash flow for the past 12 months turned negative, coming in at −$42.4 billion due to a sharp increase in capital expenditures. At the same time, operating cash flow increased by 29% to $168.3 billion, and operating margin reached a record 13.9%. Amazon plans to allocate approximately $220 billion to capital expenditures in 2026, with a further increase in 2027. In our view, investor focus is shifting from demand for AI—which remains high—to investment payback periods and companies’ ability to finance these investments with their own funds. Concerns have also spread to suppliers: in Asia, shares of Samsung Electronics and SK hynix fell.

Intel’s (INTC) weak outlook will be a separate source of pressure: the company expects revenue for the current quarter to range from $15 billion to $16 billion, compared with a consensus estimate of about $17.1 billion. In addition to rising memory prices and a slowdown in the PC market, results will be impacted by a production halt in Israel, which will reduce quarterly revenue by approximately $300 million. At the same time, demand for server processors remains high. In our view, the memory shortage continues to support memory manufacturers, but at the same time increases costs for PC manufacturers and creates the risk of a further weakening of demand.

At 8:30 a.m. Eastern Time (ET), the Employment Cost Index (ECI) for the third quarter will be released: the consensus forecast calls for a 0.8% quarter-over-quarter increase, following a 0.9% rise. At 9:45 a.m. ET, the Chicago Business Activity Index for October will be released (consensus: 56.0 points, down from 58.8); we do not expect this to have a significant impact on the market. Next week will see the release of the ISM indices, JOLTS job openings data (November 3), and the October labor market report on November 6.

Brent is holding above $112 per barrel, and WTI is above $103 following statements by the Houthis regarding new attacks on Saudi oil infrastructure, including the Aramco facility in Abqaiq. A report of an attack on a tanker in the Strait of Hormuz has created additional uncertainty. Diplomatic contacts between the U.S. and Iran have not yet led to any noticeable de-escalation. High oil prices are supporting the energy sector but continue to pose inflationary risks.

Before the market opens, oil companies ExxonMobil (XOM), Chevron (CVX), and BP (BP), as well as AbbVie (ABBV), General Dynamics (GD), Colgate-Palmolive (CL), Regeneron (REGN), and Cameco (CCJ).

S&P 500 futures are trending lower, Nasdaq-100 contracts are down about 2%, and Dow Jones futures are trading near zero. We assess the risk-reward balance as negative and expect increased volatility. That said, the sell-off is currently concentrated among the largest technology companies: yesterday, the equally weighted S&P 500 gained 1.2% despite the decline in the traditional index, and nine out of 11 sectors posted gains. According to our data, the S&P 500’s RSI stands at 50.6 points, compared to a median value of 61.6 points across sectors (the 2nd percentile of the five-year history). This rare divergence confirms the sustainability of the rotation away from the technology sector and limits the grounds for expecting a broad-based sell-off. We see the nearest support for the S&P 500 in the 7,600–7,610 range.

— Amazon (AMZN) shares are down about 6.5%. Third-quarter EPS ($1.89) came in below consensus, while revenue ($201.9 billion) was close to consensus. Meanwhile, AWS revenue rose 39% to $46.0 billion, exceeding expectations, and the company’s operating margin reached a record 13.9%. Capital expenditures for the quarter totaled $77.3 billion, and the annual guidance of approximately $220 billion remains unchanged. Profitability is growing, but cash flow is currently being entirely directed toward infrastructure expansion.

— Intel (INTC) shares are down nearly 26%. Adjusted EPS for the third quarter (0.52) beat the consensus estimate (0.40), while revenue ($16.5 billion) met expectations. However, the forecast for the current quarter calls for revenue of $15–16 billion and adjusted EPS of $0.25, compared to a consensus of $17.1 billion and $0.43. At the same time, the adjusted gross margin will decline to 38% from 44.1%. Management expects the PC market to remain weak at least until mid-2027 due to rising prices and a memory shortage. Meanwhile, revenue from the data center and AI division grew 78% year-over-year, confirming sustained demand for server processors.

— Stryker (SYK) shares are down more than 10%. Revenue for the last quarter rose 7.7% to $6.52 billion, compared with a consensus estimate of $6.62 billion. Adjusted EPS came in at $3.52, compared to a consensus estimate of $3.55. The company lowered its organic revenue growth forecast for 2026 to 6.5–7.0% (previously: 8.3–9.3%), and its adjusted EPS forecast to $14.80–14.90 from $14.95–15.10. Management noted a slowdown in demand for hip and knee replacements, partly due to rising out-of-pocket costs for patients. Supply disruptions for vascular products and internal operational challenges added to the pressure. The slowdown in the joint replacement market could also negatively impact competitors, including Zimmer Biomet (ZBH).

— Reddit (RDDT) shares are down nearly 22%. Third-quarter revenue rose 53% year-over-year to $895 million, compared to a consensus estimate of $874.9 million; however, the fourth-quarter guidance ($1.00–1.03 billion) fell short of expectations. Management reported that in October, the number of search-driven visits declined by an average of more than 1 million per week, citing Google’s AI-powered search feature as the likely primary cause. If this trend continues, the daily audience in the current quarter could decline by 10–15%. The report clearly illustrates the risk that AI search poses to platforms that rely on traffic from Google.

Trading on October 29 on U.S. stock exchanges ended with mixed results. The S&P 500 fell 0.30%, the Nasdaq-100 lost 1.38%, and the Dow Jones dropped 0.25%, while the Russell 2000 gained 1.01%. The decline in the major indices masked broad-based market gains: the equally weighted RSP rose 1.20% compared with a 0.38% decline in the SPY and, for the first time in five sessions, outperformed it by 1.58 percentage points. On the NYSE, advancing stocks outnumbered declining ones by a ratio of 2.46:1, while on the Nasdaq, the ratio was 1.04:1. The healthcare sector (XLV: +2.40%) led the way on the back of strong earnings reports from pharmaceutical companies, while the communications sector (XLC: −1.87%) lagged behind due to Alphabet’s plunge.

The selling pressure was concentrated in the tech sector and the AI segment. Alphabet (GOOGL: −12.6%) extended its premarket decline amid a slowdown in search activity. Microsoft (MSFT) was unable to hold onto its morning gains due to reports that it is preparing its first bond offering since 2017, totaling at least $25 billion, which drew attention to the growing need for funding AI investments. The software sector remained under pressure: ServiceNow (NOW: −27.0%) extended its pre-market decline, while Fortinet (FTNT: −20.1%) narrowed its losses. Caterpillar (CAT: −9.3%) fell due to slowing growth in its order backlog amid high expectations. Bucking the trend, KLA (KLAC: +5.5%) rose after raising its market estimate for wafer fabrication equipment for 2026 and, for the first time, providing a guidance figure above $200 billion for 2027.

Treasuries rebounded after yields rose following the Fed meeting: the yield on 2-year bonds fell by 12 basis points to 4.60%, on 10-year bonds by 9 basis points to 4.94%, and the yield on 30-year bonds fell by 5 basis points to 5.30%. In our view, the more pronounced decline at the short end of the curve reflects easing concerns about a rate hike in December.

The core PCE index rose 0.3% month-over-month in September, in line with the consensus, and accelerated from 3.0% to 3.1% on an annualized basis. The preliminary estimate of GDP for the previous quarter showed growth of 3.4% annually, compared with a consensus estimate of 3.2%, following 2.2% in the second quarter. Consumer spending (+3.8%, compared to a consensus estimate of 3.4%) and investment provided support. Meanwhile, in September, personal income rose 0.2% against a consensus estimate of 0.3%, while spending rose 0.5% against a consensus estimate of 0.6%. The number of initial claims for unemployment benefits fell from 195,000 to 194,000, compared with a consensus estimate of 198,000.

Eli Lilly (LLY: +6.6%) beat expectations thanks to sales of Mounjaro and Zepbound and raised its full-year revenue forecast; Merck (MRK: +3.8%) raised the lower end of its revenue forecast and its EPS forecast; Altria (MO: +5.2%) raised its EPS forecast. Chipotle (CMG: +8.8%) increased comparable sales by 2.1%, beating the consensus estimate of 1.5%.

This article was AI-translated and verified by a human editor