Stock Market Decline Offsets Solid Economic News on GDP, Consumer Spending

The major U.S. equity markets finished sharply lower on Friday in a volatile trading session with the Dow closing nearly 300 points lower and the S&P 500 Index dipping into correction territory at one point during the day. While investors were concerned about rapidly rising interest rates earlier in the month, Friday’s sell-off was related to disappointing earnings reports from tech giants Amazon and Alphabet (Google’s parent).

In the cash market, the benchmark S&P 500 Index settled at 2658.69, down 46.88 or -1.76%. The blue chip Dow Jones Industrial Average finished at 24688.31, down 296.24 or -1.20% and the tech-based NASDAQ Composite ended the session at 7155.12, down 163.22 or -2.28%.

The closing prices don’t tell the whole story, however. At one point during the trading session, the Dow was down 539 points. The NASDAQ Composite fell as much as 3 percent at its lows. The S&P 500 Index briefly entered correction territory, trading more than 10 percent below its record high reached in September.

Breaking down the internals of the S&P 500 Index shows that seven of the 11 S&P 500 sectors are down at least 10 percent from their 52-week highs, including energy, materials and financials. Additionally, about three quarters of the index’s stocks are also in a correction.

The catalysts behind the selling pressure were disappointing earnings from key tech companies that overshadowed strong U.S. economic data.

Shares of Amazon fell nearly 8 percent after the company released its latest quarterly results on Thursday after the close. Alphabet (Google’s Parent) dropped nearly 6 percent before closing 1.8 percent lower. Earnings for both companies topped analyst estimates, but revenues fell short.

U.S. Economic Reports

The U.S. economic news was better-than-expected on Friday, but this was offset by the steep drop in equity prices.

According to a government report, the U.S. economy grew at a faster-than-expected pace in the third quarter as inflation was kept in line and consumer spending surged.

According to the U.S. Commerce Department, Gross Domestic Product expanded by a 3.5 percent annual rate. Economists were looking for an increase of 3.4 percent. At the end of the second quarter, GDP stood at 4.2 percent.

The Commerce Department also said the PCE price index, the Fed’s key measure of inflation, increased by 1.6 percent last quarter, much less than the 2.2 percent increase expected by economists.

A jump in consumer spending was the surprise of the day. Consumer spending, which accounts for more than two thirds of U.S. economic activity, grew by 4 percent in the third quarter, the strongest since the fourth quarter of 2014.

The surge in consumer spending was necessary to help overall GDP expansion because business spending declined 7.9 percent. This was the biggest quarterly decline in business spending since the first quarter of 2016.