Major indexes extended losses Wednesday, tumbling to fresh lows as a
dismal earnings report from Google-parent Alphabet sparked a tech rout. The Dow
shed modest ground while the S&P 500 and Nasdaq plunged, with futures
pointing to more pain ahead.

The tech-heavy Nasdaq 100 futures slumped 1.2% late Wednesday, signaling
another rough open. The S&P 500 futures also retreated 0.7% after the
index violated a key support level amid the damage in large-cap tech names.
Dow futures edged down 0.2%.

The negative action in futures comes on the heels of bruising regular session
losses that saw the S&P 500 and Nasdaq undercut their October lows,
torpedoing their nascent rebound attempts.

“This is clearly still a market under distribution where bounces are brief and
leading growth stocks are struggling mightily,” said Mike Potter, head of
technical strategy at ChartWatchers. “The indexes could be setting up for a
retest of the bear market lows unless sentiment stages a marked turnaround.”

Google Plunge Weights Heavily on Tech

The catalyst for Wednesday’s tech wreckage came after the closing bell
Tuesday, when Google badly missed third quarter revenue expectations for its
cloud computing segment. The rare miss for the search giant exacerbated fears
over slowing digital ad spending heading into the crucial holiday season.

Alphabet stock cratered 9.6% in Wednesday’s trading, suffering its worst
single-day percentage drop since March 2020. The $100 billion decline in
Alphabet’s market capitalization acted like an anchor dragging down other tech
leaders and the major indexes.

Events data company Splunk also cratered over 15% after slashing its full-year
forecast as customers cut back spending. Meanwhile software firm Dynatrace
plunged nearly 13% on downbeat earnings guidance.

The broad tech selloff bodes poorly for other giants set to report in coming
days, including Apple, Amazon and Meta Platforms. Amazon stock tumbled 5.6%
Wednesday, partly on concerns over its cloud business AWS following Google’s
cloud shortfall.

“When a company like Google stumbles, it sends shockwaves through the entire
tech sector,” said Marissa Silverman, finance professor at NYU Stern School of
Business. “The pressure is now on for Amazon Web Services and Microsoft Azure
to deliver strong cloud results and assuage investor worries.”

Microsoft did deliver upbeat cloud numbers Tuesday evening, helping its stock
gain 3% Wednesday. But it wasn’t enough to offset the damage from Google and
rising rates.

Rates Weigh on Stocks, Housing

Beyond tech weakness, markets remain on edge over the path of interest rates
following mixed economic signals.

The benchmark 10-year Treasury yield, which helps set rates for mortgages and
other consumer and business loans, surged 11 basis points Wednesday to end
near 4.95%.

Comments from Federal Reserve officials affirming the likelihood of additional
hefty rate hikes continue rattling investors hoping for a pause in tightening.
Markets face a steady stream of Fed speeches in coming days that could
exacerbate volatility.

“The Fed is making it crystal clear that it plans to continue aggressively
hiking rates until inflation meaningfully reverses course,” said Ed Campbell,
portfolio manager at Queens Road Capital. “That spells more trouble ahead for
rate-sensitive sectors like housing and technology.”

Homebuilder stocks sold off sharply Wednesday after disappointing housing
data. The SPDR S&P Homebuilders ETF plunged over 2% to extend its 2022
decline past 40%. Mortgage rates have roughly doubled in the past year,
crushing affordability and pricing out many prospective homebuyers.

Bleak Market Breadth Signaling More Downside

The overall grim market action Wednesday signals stocks likely face more
downside in coming weeks absent a seismic improvement in sentiment.

All 11 S&P 500 sector groups closed lower on the day, with tech and
consumer discretionary shares suffering the biggest losses.

In a sign of broad market deterioration, the small-cap Russell 2000 index
slumped 1.7% to a fresh 52-week low. The S&P Equal Weight index, which
negates the impact of mega-cap stocks, also undercut its October trough.

Just shy of 400 New York Stock Exchange-listed stocks hit new 52-week lows
compared to only 68 ticker reaching new highs.

The Cboe Volatility Index, or VIX, spiked above 31, reflecting surging demand
for downside protection among options traders.

“It’s a dangerous market environment where bounces lack conviction and
breakdowns carry momentum,” said Mike Clark, senior technical analyst at
StockCharts.com. “The path of least resistance seems to be to the downside
until we see real capitulation in the VIX and other fear gauges.”

Many technicians are now watching the S&P 500’s 2022 low near 3,636 as the
next major inflection point. A decisive breach of this support could open the
door to a fall toward the index’s pre-Covid high near 3,400.

Ford Strike Nears End, But Automaker Faces Headwinds

In a bright spot for the languishing stock market, Ford reached a tentative
labor agreement late Wednesday with the United Auto Workers union, according
to multiple reports. The deal would end a nearly six-week worker strike that
crippled production and added to vehicle shortages.

Ford shares edged up 0.5% in after-hours trade. The stock had fallen 1.5%
Wednesday amid broad market weakness.

The UAW confirmed it would share details of the tentative four-year pact at a
Thursday morning news conference. The agreement must still be approved by
national union leaders and then ratified by Ford’s 56,000 union members.

The deal follows an earlier tentative agreement between the UAW and General
Motors. Stellantis, formerly Fiat Chrysler, remains in negotiations with the
union.

But analysts caution the labor deal doesn’t alleviate the serious challenges
confronting Ford and its Detroit rivals. Sales remain constrained by low
vehicle inventory amid strained supply chains. Rising interest rates also
threaten demand. Ford and GM shares are each down around 40% in 2022.

“The strike was a major overhang, but Ford and the other automakers still face
a host of demand and cost headwinds in coming quarters,” said equity analyst
Joseph Spak of RBC Capital Markets.

Key Data Could Add to Inflation Clues

With stock and bond markets firmly in the grips of the Fed and inflation, all
eyes turn to major economic data slated for release Thursday and Friday.

The Commerce Department’s first estimate of third quarter GDP growth leads
Thursday’s slate. Economists expect the report to show the economy expanded
2.3% between July and September after contracting in the first two quarters of
2022.

Weekly jobless claims, durable goods orders and pending home sales data will
also be parsed for clues on the health of the economy.

On Friday, the personal consumption expenditures price index for September
highlights the day’s busy calendar. The PCE index is the Fed’s preferred
inflation gauge. An easing in the monthly rate could give the central bank
cover to downshift the size of future rate increases. But a hotter reading
would likely reaffirm the Fed’s hawkish stance.

Earnings season also continues at a frenzied pace, with Amazon and Apple
headlining next week’s reports. Though stocks may see near-term reprieve from
bad news being priced in, the overall economic landscape argues more
volatility lies ahead.

“With risks skewed to the downside for both equities and bonds, sensible
investors should resist the urge to buy dips in this environment,” advised
Benjamin Bowler, head of global asset allocation at RBC Wealth Management. “A
defensive portfolio stance continues warranting overweight positions in cash
and short-duration bonds.”