Morning in New York: The High-Tech Sector Cools Off Ahead of the Election

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

Concerns surrounding the financing of AI infrastructure will be the main driving factor during the upcoming session. On October 30, S&P Global Ratings downgraded its outlook on Meta Platforms’ (META) rating—which remains at AA−—from stable to negative. The company’s free cash flow in the third quarter was −$2.12 billion due to high capital expenditures. In our view, investors will become increasingly critical in assessing tech companies’ ability to sustain further growth using their own funds. This heightens the significance of today’s earnings reports from Apple (AAPL) and Palantir (PLTR): strong demand must be accompanied by sustainable cash flows and convincing outlooks.

Expectations surrounding the midterm congressional elections, scheduled for November 3, will serve as an additional headwind. Uncertainty regarding future fiscal and regulatory policies may limit investors’ willingness to build positions following the sell-off. The stock market is being supported by WTI prices approaching $100 per barrel amid Qatar-mediated negotiations on Iran. The seven countries participating in the OPEC+ agreement have maintained their December production limits at September’s levels. However, there is still no confirmed agreement regarding the Strait of Hormuz, and the risk of an escalation of armed conflict in the region following the elections remains.

At 10:00 a.m. Eastern Time (ET), the ISM Manufacturing Purchasing Managers’ Index (PMI) for October will be released (consensus: 54.5 points, unchanged from September). Freedom Broker analysts’ forecast: 54.4 points. We will focus primarily on new orders and the price component of the index. Easing inflationary pressure amid steady demand would support the market.

At 11:15 a.m. ET, Chicago Fed President Ostan Goolsby will moderate a panel discussion at a financial markets conference. Later in the afternoon, the SLOOS survey of banks on lending conditions will be released (2:00 p.m. ET). At 3:00 p.m. ET, the Treasury will release its assessment of borrowing volumes. These releases will provide further insight into the outlook for capital availability and the dynamics of Treasury yields.

Before the main session opens, Marriott International (MAR), Estée Lauder (EL), and IDEXX Laboratories (IDXX) will report their earnings. After the market closes, Apple (AAPL), Palantir Technologies (PLTR), onsemi (ON), Vertex Pharmaceuticals (VRTX), Fabrinet (FN), and BWX Technologies (BWXT) will report their quarterly results. In Apple’s earnings release, key factors will include iPhone demand and expectations for the holiday sales quarter; for Palantir, they will include growth in its U.S. commercial business and its cash flow forecast.

S&P 500 futures are showing positive momentum, with Nasdaq-100 contracts leading the way. We assess the risk balance for the upcoming session as neutral amid heightened volatility, which will be driven in the after-hours market by earnings reports from tech sector leaders. The correction in oil prices is supporting the recovery, while concerns about AI investments and pre-election uncertainty are limiting upside potential. The nearest support level for the S&P 500 is around 7,530 points, with resistance in the 7,600–7,610 range. If the index consolidates above this level, the risk-reward balance could shift to the positive side.

— Meta Platforms (META) fell about 0.2% following the aforementioned downgrade of its outlook by S&P Global. The agency forecasts a $71 billion deficit in the company’s free operating cash flow for 2027. Today, META’s stock price will continue to react to this decision. The focus is on the company’s ability to finance its AI investments without further deteriorating its credit profile.

— According to CNBC, OpenAI intends to raise up to $20 billion in its new funding round, instead of the previously planned $30 billion. Although the current funding round is not yet closed and its terms may change, this revision of the targets is drawing increased attention to the availability of external capital for AI companies and may hinder the recovery of related securities.

— Okta (OKTA) rose about 2.3% following the announcement that it would be added to the S&P 500 in place of Kenvue (KVUE) effective November 4. This will boost demand for the company’s shares from index funds amid the ongoing weakness in the software sector.

— Elon Musk’s announcement regarding the expansion of the Colossus 2 program was a major news event for SpaceX (SPCX). Two additional launches are scheduled for November and December, and the number of Blackwell boosters is expected to approach 1.2 million by the end of the year. For investors, meeting deadlines and securing funding for the new capacity are key considerations.

— Johnson & Johnson (JNJ) presented the results of a study of the Shockwave Javelin coronary catheter in a group of 158 patients. The study met its predefined efficacy and safety criteria, which improves the prospects for expanding the company’s cardiovascular MedTech business.

Trading on October 30 on U.S. stock markets ended in the red. The S&P 500 lost 1.82%, the Nasdaq-100 fell 3.46%, the Dow Jones dropped 1.09%, and the Russell 2000 fell 1.66%. The main pressure came from a reassessment of the outlook for technology companies following earnings reports from Intel (INTC) and Amazon (AMZN). The IT sector (XLK: −4.89%) was the underperformer, while the energy sector (XLE: +1.91%) led the gains, supported by hydrocarbon prices and the results of oil companies. Thanks to continued demand for safe-haven assets, providers of non-cyclical consumer goods (XLP) gained 1.41%, the utilities sector (XLU) rose 0.67%, and the healthcare sector (XLV) gained 0.45%.

Selling pressure remained concentrated among the largest technology companies. The equally weighted RSP fell 0.79%, compared with a 1.77% decline for the SPY. Nvidia (NVDA: −4.2%), Intel (INTC: −28.6%), AMD (AMD: −10.9%), and Broadcom (AVGO: −5.5%) collectively accounted for about 0.92 percentage points of the negative contribution to the SPY, or more than half of its decline. In our view, the combination of this concentration with the rise in defensive sectors points to a continued rotation out of the tech sector while demand for other market segments remains strong.

Intel (INTC) issued a disappointing revenue forecast for the fourth quarter: $15–16 billion, compared with a consensus estimate of about $17.1 billion. Strong results from the server segment failed to offset concerns about a slowdown in the PC market and future capital expenditures. Amazon (AMZN: −1.4%) fell despite accelerated revenue growth in the AWS segment to 39% year-over-year. The company’s free cash flow over the past 12 months was −$42.4 billion, with an annual capital expenditure plan of approximately $220 billion. The market’s reaction points to higher expectations regarding the return on AI investments and companies’ ability to finance further growth with their own funds.

Yields on two-year Treasuries fell by about 6 basis points to 4.59 percent, while yields on 10-year Treasuries fell to 4.93 percent.

The labor cost index for the third quarter rose 0.8% quarter-over-quarter, in line with consensus estimates, following a 0.9% increase in the previous three months. The Chicago PMI fell to 55.3 points, missing the forecast of 56, while its price component reached its highest level since December 2021. Lori Logan, president of the Dallas Fed, believes at least two 25-basis-point rate hikes are necessary, while her St. Louis counterpart, Alberto Musalem, spoke in favor of tightening monetary policy in the near future. In our view, the rise in Treasury yields amid hawkish statements from Fed officials reflected demand for safe-haven assets.

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