The Nasdaq fell 1.8% overnight, with no large tech stocks spared. This week, Google and Meta announced better-than-expected third-quarter financial results, but market concerns about the future prospects of both companies
diluted the positive financial numbers, with Meta falling nearly 4% after the financial report; Amazon’s third-quarter revenue and profits exceeded expectations, with its cloud business (AWS) revenue increasing slightly
year-on-year, but far less than its competitors Microsoft and Google, and its revenue guidance for the fourth quarter was also lower than expected, causing its stock price to fall during the financial report conference call.
On the same day, the strong growth in US GDP was announced, with a quarterly growth rate of 4.9% (expected to be 4.5%), the fastest since the peak of the 2021 recovery. This is not good news for the stock market, as it means
that the hawkish stance of the Federal Reserve may be maintained for a longer period of time. Although we still see strong seasonal prospects for the US stock market from October to December, uncertainty may make the process
of stock index recovery more turbulent.

Tech giants’ fourth-quarter guidance unsettles the market, and on Thursday, the three major US stock indices hit a four-month low simultaneously.

Earlier, we mentioned that investors need to pay attention to whether the market is at a turning point, as higher bond yields and steeper yield curves could hit overvalued growth stocks. The Magnificent Seven (Mag7),
consisting of Amazon, Alphabet, Apple, Nvidia, Meta, Microsoft, and Tesla, have become synonymous with this bull market, accounting for a quarter of the market value of the S&P 500 index.

Since the beginning of this year, the Nasdaq 100 index and the S&P 500 index have rebounded by nearly 50% and 30%, respectively, with several large-cap tech stocks contributing to most of the index gains. However, except
for Nvidia, the revenue of the other Mag7 companies has been difficult to keep up with or only slightly exceeded nominal economic growth. And now, their valuation premium is higher than during the first rebound from the
COVID-19 lockdowns. There are signs that Mag7’s dominant position in the market is declining, averaging an 11% drop from its summer peak. Therefore, although the third-quarter earnings of tech giants were not bad, the
market’s tolerance is decreasing. In other words, once performance falls slightly short of expectations, the market’s punishment on stock prices will be far greater than before.

On the 26th, the three major US stock indexes hit a four-month low together, with the S&P 500 index falling below its 200-day moving average to around 4,137.23 points, and the Nasdaq 100 index falling 189 points to 14,109
points, down 11% from its highest point earlier this year despite rebounding nearly 50% at one point. This is mainly due to the weak performance of some large-cap tech stocks as investors digest disappointing earnings data.

The day before, the three major indexes had already collectively fallen, with the Nasdaq falling more than 2%, and Alphabet, Google’s parent company, plummeting nearly 10% due to lower-than-expected revenue from its cloud
business, marking its largest single-day decline since the pandemic. In sharp contrast, Microsoft’s intelligent cloud business continued to maintain its industry-leading position, with its stock price rising by 3%. However,
Microsoft alone cannot change the pessimistic market sentiment.

Specifically, Alphabet, which just experienced its biggest stock price drop since March 2020, had an EPS of $1.55, a YoY increase of 46%; revenue of $7.66 billion, a YoY increase of 11%; and operating profit of $2.13 billion,
a YoY increase of 24%.

The revenue of different departments is as follows: The total revenue of Google Services is $67.9 billion, a year-on-year increase of 10.7%. Among them, Google Advertising accounted for $59.6 billion, a year-on-year
increase of 9.4%. Google Search and other segments accounted for $44 billion, a year-on-year increase of 11%. YouTube Advertising accounted for $7.9 billion, a year-on-year increase of 12.4%. However, the reason for the
sharp drop in stock prices this time is that the revenue of Google Cloud department is $8.4 billion, a year-on-year increase of 22.4% (compared to a year-on-year increase of 28% in the previous quarter).

Overall, Alphabet’s advertising revenue grew by 9.5%, and with the boost from cloud business, Alphabet’s total revenue reached $76.6 billion, a year-on-year increase of 11%, which is still lower compared to Microsoft’s
40%+ or Apple’s 30%+. However, compared to other industries, this is an extremely advantageous number (Tesla only has 14%).

Alphabet still holds over 90% of the global search engine market share, despite Microsoft’s introduction of AI search. Alphabet has not yet lost its leading position and is still striving to catch up in the field of AI.
Therefore, one of the reasons for this decline is that the previous months’ rise led to an overvaluation.

Following the release of its financial report, Meta also experienced a sharp drop in stock prices. Meta’s third-quarter revenue increased by 23% compared to the same period last year, reaching $34.15 billion, higher than
the expected $33.51 billion. Diluted EPS soared from $1.64 in the previous year to $4.39, far exceeding analysts’ expected $3.60. The advertising prices on its platform decreased by 6% this quarter. Although it is negative growth, compared to the sharp double-digit percentage decline in the past 18 months, this is a significant improvement. Moreover, this decline is lower than analysts’ expected 8.9%, and analysts now have more confidence that advertising prices will recover in the future. The problem is that despite the signs of bottoming out in advertising prices, this positive aspect is overshadowed by management’s warning of “uncertainty” in revenue prospects for 2024.

Currently, Meta tightly controls costs but continues to invest in new areas such as AI, augmented reality/virtual reality headsets, and the metaverse, hoping that AI will change its business. However, management says it
is too early to discuss profitability now. As investors focus more on prospects rather than results, Meta’s stock price fell by more than 3%, which also dragged down the Nasdaq 100 index to a four-month low.

Coincidentally, Amazon, which also performed well but saw its stock price decline due to fourth-quarter guidance, reported third-quarter revenue of $143.1 billion, a year-on-year increase of 13%, higher than the market’s
expected year-on-year increase of 11% to $141.4 billion, and a quarter-on-quarter increase of 6.5% compared to the second quarter. However, Amazon’s fourth-quarter guidance was not satisfactory. The company believes that
net sales in the fourth quarter will be in the range of $160 billion to $167 billion, with an expected midpoint of $163.5 billion, which is an increase of less than 10% year-on-year and not far from the historically
lowest growth rate, and lower than the market’s expected $166.6 billion.

Strong economic data and US bond yields continue to weigh on risk assets.

Another factor putting pressure on the market is undoubtedly the Federal Reserve, and the accompanying continuous rise in US bond yields has also hit risk assets. The US GDP for the third quarter increased at an
annualized rate of 4.9%, far exceeding the previous value of 2.1% and the expected 4.3%. This is mainly due to the push from consumption, inventory, and government spending. In addition, durable goods orders rose 4.7%
month-on-month in September, exceeding the expected 1.7%.

The resilience of US consumers is surprising. The data shows that consumption contributed the most to growth, with a 4% increase, of which goods increased by 4.8% and services by 3.6%. This makes it difficult for the
Federal Reserve to abandon its hawkish stance at next week’s meeting. Currently, it is expected that even if the Federal Reserve announces no change in November, it cannot rule out the possibility of raising interest
rates again in December, and the timing of rate cuts may be postponed until the third or fourth quarter of 2024, with the magnitude of rate cuts greatly reduced to two times.

Last week, initial jobless claims in the US hit a nine-month low of 198,000, and the labor market remains strong. After the data was released, Powell mentioned in a public speech that he would act cautiously (echoing
expectations of no rate hike in November) while continuing to suggest the possibility of future rate hikes (due to recent hot economic data).

At the same time, the recent rebound in oil prices may also affect future US inflation, thereby affecting the Federal Reserve’s interest rate hike process and impacting stock indices. On the 26th, WTI crude oil fell
back to near the key support level of 83.40 after giving up all its gains from the 25th. US crude oil inventories increased by 1.37 million barrels last week, exceeding the expected 239,000 barrels. However, as
geopolitical tensions have not yet subsided and the peak demand for winter heating approaches, oil prices may still remain high.

Technically speaking, oil prices rebounded for the third time in October from around $82.30, which is the 38.2% retracement level of the May-September uptrend. The strong economic growth in the United States has boosted
market confidence, so bears have not yet truly taken control. However, the downward trend line and weekly chart pattern since September also suggest that the current rebound in oil prices may be relatively limited.
Bulls will focus on the former high of $85.50 and the $88 level. Currently, major Wall Street banks still predict that the possibility of oil prices approaching $100 cannot be ruled out.
It is worth mentioning that last week the yield on the 10-year US Treasury bond briefly reached 5%, before hovering around 4.9%, reaching a new high since 2007. However, the shorter-term 2-year yield fell back below
5.2% from its peak,
with the yield spread between the two approaching zero. The recent easing of the degree of yield curve inversion seems to imply a significant decrease in the probability of an economic recession in the US.
The rise in long-term yields has a tangible impact on the economy, as investors can obtain high yields by purchasing US bonds, which also affects the attractiveness of other risk assets, leading to pressure on assets
such as the stock market.

Breaking below the 200-day moving average, US stocks need to avoid hitting new lows in the next three months.

From a technical perspective, the Nasdaq 100 index experienced its most significant single-day decline since 2023 on the 26th, causing it to fall to its lowest point in four months and break below the bottom of the
support zone that has been in place since June. The index managed to avoid setting new lows for nearly three months, but now it is showing that the downward trend that started in July is still continuing. Assuming the
downward trend continues, we may not see the next support level until 14,200 points. For the bulls, the current goal is for the index to return to the support zone above 14,400 points, while achieving new highs would
require a breakthrough above 14,750 points.