Thursday, October 29, broke Wall Street's three-day winning run, and technology took nearly all the damage. The Nasdaq Composite closed at 26,108.35 after losing 441.15 points, or 1.66%. The S&P 500 ended at 7,695.25, down 48.73 points (0.63%), while the Dow finished at 52,163.07, off 315.36 points (0.59%). One session earlier, all three indexes had finished higher after the Federal Reserve held rates at 3.75% to 4% in a 10-2 vote.
The trigger arrived late Wednesday, when Alphabet posted third-quarter revenue of $127.58 billion. That was 25% above a year earlier, yet below the roughly $128 billion consensus. Net income dropped to $26.17 billion from $34.98 billion a year earlier, and earnings per share of $2.12 absorbed an $8.7 billion loss on equity investments. Google Cloud revenue jumped 103% to $30.7 billion, but search advertising came in below expectations, and that gap set the tone for Thursday.
What traders priced was the cash bill behind the growth. Alphabet spent $51.355 billion on property and equipment in the quarter, up 114% from a year earlier. Free cash flow printed at negative $9.065 billion, a second straight negative quarter.
Shares closed near $284.74 against Wednesday's $324.89 close, a drop of about 12.4% and the stock's worst session in at least a decade. Reuters put the market-value loss above $464 billion, most of the more than $500 billion the Nasdaq-100 shed on the day.
Why it matters
Alphabet's report landed in the middle of a market argument about whether AI spending pays for itself. Microsoft showed the other side of that argument one night earlier: Azure revenue grew 48% and free cash flow reached $18.6 billion, lifting its shares about 3% after hours. By Thursday's close, Microsoft had given part of that gain back, ending about 1.5% lower after reports it plans to raise at least $25 billion through a bond sale.
The split verdict ran through the rest of the tape. Software names Fortinet and ServiceNow each fell more than 20% after their own results. Marvell Technology slid 12.8% on reports of advanced talks to buy Lumentum Holdings, and semiconductor stocks dropped 2.0%, snapping a four-day winning streak. The pattern was consistent: cloud growth got rewarded, cash burn got punished, and anything priced on AI promises without cash behind it fell hardest.
Thursday's data gave the Fed no reason to move in either direction, which kept December in focus. The first estimate of third-quarter GDP showed the US economy growing 3.4% annualized, above the roughly 3.0% forecast and its fastest pace in a year.
September PCE inflation rose 0.5% from August and 3.6% from a year earlier, with core PCE up 0.3% on the month, both in line with expectations. Traders held onto bets for a December rate hike after the Fed's hold, with pricing above 80%, and the 10-year Treasury yield slipped just below 5% after the GDP release.
Breadth told a second story underneath the headline drops. NYSE breadth favored buyers by 1.59-to-1. Nasdaq breadth stayed positive too: 2,221 stocks fell while 2,416 rose. The small-cap Russell 2000 advanced 0.8% while the megacap indexes fell.
Baird investment strategy analyst Ross Mayfield called the small-cap strength "a good sign", arguing that a wobble in the AI story had not spread to every corner of the market.
MarketRadar levels
| Index | October 28 close | October 29 close | Change |
|---|---|---|---|
| Nasdaq Composite | 26,549.85 | 26,108.35 | -441.15 (-1.66%) |
| S&P 500 | 7,743.98 | 7,695.25 | -48.73 (-0.63%) |
| Dow Jones | 52,475.10 | 52,163.07 | -315.36 (-0.59%) |
The table puts Thursday's move in proportion. The Nasdaq's 441-point drop ran more than nine times the S&P 500's 48.73-point fall, and the Nasdaq closed 108.35 points above the 26,000 round number. The S&P 500 finished 4.75 points below 7,700, a level it held at Wednesday's close. Healthcare led the S&P 500's 11 sectors while communication services and technology fell hardest. Outside tech the session had winners: Eli Lilly jumped 6.3% to a record high after lifting its revenue outlook, Ford gained 2.9% on a third-quarter revenue beat, and Merck advanced 4.4%.
What to watch
- Amazon and Intel report after Thursday's close, with AWS growth and Amazon's capital spending read against the same cash-flow standard Alphabet failed.
- The Bank of Japan decision arrives during Friday's Asian session, with a hold expected and guidance on December in focus.
- Euro-area flash third-quarter GDP and preliminary October inflation print on Friday, October 30.
- More than half the S&P 500 has now reported: 253 companies, with 81% beating expectations, and LSEG puts aggregate third-quarter earnings growth at 31.0% year on year.
- December Fed pricing stays above 80% for a hike, so the next inflation readings carry the policy debate from here.
Key points
- Nasdaq Composite fell 1.66% to 26,108.35; S&P 500 lost 0.63% to 7,695.25; Dow dropped 0.59% to 52,163.07.
- Alphabet revenue of $127.58 billion missed the roughly $128 billion consensus; capital spending hit $51.355 billion, up 114% year on year.
- Alphabet free cash flow was negative $9.065 billion, its second straight negative quarter; shares closed near $284.74, down about 12.4%.
- US third-quarter GDP grew 3.4% annualized, above the roughly 3.0% forecast; September PCE rose 0.5% on the month and 3.6% year on year.
- Small caps outperformed: the Russell 2000 rose 0.8% while Nasdaq breadth stayed positive at 2,416 advancers to 2,221 decliners.
MarketRadar take
Thursday repriced one question, not the whole market: whether AI investment converts into cash. Alphabet's cloud growth of 103% did not offset a revenue miss plus $51.4 billion of quarterly spending, and the Nasdaq paid for it with a 1.66% drop. The 26,000 level on the Nasdaq and 7,700 on the S&P 500 frame Friday's open, and with Amazon and Intel reporting after the bell, the cash-flow test now moves to the next two megacaps.
