Equities: Risk sentiment weakens as tech stocks lead sell-off – Danske Bank

Global equities had a subdued session, according to Danske Research Team, with a 0.3% decline in the S&P 500 contrasting with a 0.8% gain in the Stoxx 600, while tech and communications lagged. Disappointing earnings sent Alphabet down 13%, and sharp falls followed for Amazon and Intel in aftermarket trading. The team flags the likely return of scepticism over AI capex, with Asian indices opening lower.

Is US tech weakness weighing on global equities?

"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."

"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.)