Wall Street Enters Correction Territory Amid Weaker-than-expected Earnings and Strong Economic Data

US stocks took a nosedive in the last week of October, marking a more than 10% drop for the S&P 500 benchmark index from the peak it reached in July. The latest economic indicators have confirmed the robustness of the US economy despite interest rates at a 22-year high. US GDP grew at a 4.9% annual pace in the third quarter, well above the 4.7% estimate. This development has stirred apprehension among investors already fearful that the Federal Reserve could protract this era of elevated rates. To make matters worse, mixed earnings reports hastened the stock market selloff.

The S&P 500 fell 2.53% for the week, bringing its year-to-performance to +7.24%. The Nasdaq Composite dropped by 2.62% (+20.80% YTD), dragged down by Alphabet and Meta Platforms while the Dow Jones Industrial Average slid 2.14% (down 2.20% YTD). The Russell 2000 index of smaller-company stocks slipped 2.61% (-7.06% YTD), to 1,636.94, its lowest level since November 2020.

In Europe, the MSCI EMU edged down 0.28% week-over-week, extending its losing streak to six weeks. Like the S&P 500, it has lost more than 10% since the end of July and its year-to-date performance is melting away (+2.99%). The FTSE 100 fared worse with a weekly loss of 1.50% and a negative performance over the year (-2.15%).

In Asia, China’s Shanghai Composite index rose 1.16% while remaining in the red on a YTD basis (-2.31%) after the government announced a massive bond issuance to spur local economic growth. By contrast, Japan’s Nikkei fell 0.86% over the week (+18.77% YTD), weighed by tech stocks.

Bitcoin soars on hopes of spot ETF approval by SEC

Bitcoin regained prominence in the market, fuelled by speculation surrounding the potential approval of a spot ETF by the Securities and Exchange Commission. The prospect of a spot Bitcoin ETF is seen driving broader flows into the world's largest cryptocurrency. It soared to impressive heights, hitting the $35k mark on Tuesday, primarily due to the ticker of BlackRock's Bitcoin ETF (IBTC) being listed on the DTCC’s website. This marked an 18-month pinnacle before slightly retracing to $34k - a notable 14% surge over the week.

Energy stocks plunge on weak earnings

Exxon Mobil (XOM) and Chevron (CVX) fell 4.98% and 13.47% respectively, dragging the energy sector lower (down 6.15% for the week) after reporting disappointing quarterly results. Furthermore, Chevron announced plans to buy smaller rival Hess (HES) in a $53-billion all-stock deal. WTI crude prices lost 3.62% over the week on hopes the Israel-Hamas war could de-escalate without disrupting oil supplies.

Communication services (down 6.29%) also pushed the broader market lower, with Alphabet (GOOG) stocks down 9.76% after the company’s miss on revenue expectations from its cloud operations. Meta Platforms (META) also lost ground, down 3.86%, as investors fretted over the company’s guidance for the fourth quarter revenue.

The consumer discretionary sector limited the damage (down 1.07%) thanks to Amazon.com stocks (AMZN), up 2.05% for the week. The company’s profit and revenue for the summer were better than expected.

The utilities sector was the only one exhibiting a positive performance for the week (+1.24%) but remains the worst performer for the year (-16.80%) within the S&P 500 index.

8 out of 11 S&P sectors have been in negative territory since the beginning of the year. The only sectors that have managed to stand out this year are communication services (+33.63% despite this week’s downturn), information technology (+31.37%), and consumer discretionary (+17.71%) in the wake of the "Magnificent Seven" big tech stocks’ outperformance: namely Apple, Alphabet, Amazon.com, Meta Platforms, Microsoft, Nvidia, and Tesla.

Keep a close eye on the latest market moves with the weekly updated league tables dedicated to fixed income ETFs.