Equities: Risk sentiment weakens as tech stocks lead declines – Danske Bank

A 0.3% decline in the S&P 500 contrasted with a 0.8% rise in the Stoxx 600 during a weak session for global equities, according to Danske Research Team, with technology and communications stocks lagging. Disappointing earnings sent Alphabet down 13%, while Amazon and Intel fell sharply in after-hours trading. The team expects scepticism over AI capital expenditure to return and notes that Asian indices opened lower.

Global equities weaken as US technology stocks retreat

"Equities were lower on Thursday, with the AI trade swinging back into negative territory. The S&P 500 fell 0.3%, while the Stoxx 600 continued to rise, gaining 0.8%. Tech and communications were among the worst performers, primarily driven by Alphabet selling off no less than 13% following disappointing earnings and negative cash flow. However, it is worth reiterating that it was the core business that missed, not AI revenues."

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"Aftermarket trading just as interesting, as the final one of the hyperscalers, Amazon, reported. However, dynamics were similar to Alphabet, with a miss in the core business and somewhat lowered guidance (only -1% below consensus, though) as Amazon expects weaker consumers into holiday season, primarily due to rising energy prices."

"The timing is of course unfortunate, with core business weakening all while cash burn accelerated. Except, when it comes to Amazon, the cash burn is in its own league. Free cash flow decreased to an outflow of more than $33bn in Q3 alone. This can be compared to the Q3 EBIT of 17bn, while consensus had expected cash flow to be around breakeven."

"As a result, the stock is down more than 7% in the aftermarket and AI capex scepticism will likely come back into markets today. This also goes for the hardware side, with Intel down -20% in the aftermarket, again not driven by AI-related revenues but by a slowing PC market following surging memory prices."

"Asian markets dipped into negative territory this morning, with the Kospi down 4% and the Nikkei 225 down 2.5%. US futures indicate an opening around -1%, and Europe -0.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)