By Lisa Pauline Mattackal
(Reuters) - Wall Street fell on Thursday, as warnings from Microsoft (NASDAQ:MSFT) and Meta Platforms about soaring AI costs dampened enthusiasm for megacap stocks, which have led the market this year.
Shares of Facebook-owner Meta Platforms dipped 2.8%, while Microsoft lost 5.1%, despite both companies beating earnings estimates in results reported after the bell on Wednesday.
The yield on the benchmark 10-year Treasury note also edged up, past 4.3%, further pressuring equities.
Meanwhile, the Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation metric, rose 0.2% in September, in line with economists' expectation. However, the core figure was 2.7%, slightly higher than the 2.6% forecast, while consumer spending increased a little more than expected.
"Investors are pondering results from Microsoft and Meta more than the economic news," said Peter Cardillo, chief market economist at Spartan Capital Securities.
"Still, the inflation news could up the chances the Fed pauses (interest-rate cuts) next week. That could be on investors' mind and cause some more negativity in the medium term."
Ahead of nonfarm payrolls numbers, due on Friday, data from the Labor Department showed the number of Americans filing new applications for unemployment fell to 216,000 claims last week.
Microsoft and Meta both said their capital expenses were growing due to AI investments, which could pressure profitability, even as investors look for quick returns on the billions already poured in.
Other so-called Magnificent Seven stocks slipped, with Nvidia losing 2.8%. Amazon.com (NASDAQ:AMZN) was down 1.7% and Apple (NASDAQ:AAPL) dipped 0.4% ahead of quarterly results from both, due after market close.
Although betting on AI-driven tech stocks propelled Wall Street to record highs this year, investor exuberance has meant stocks are trading at incredibly expensive valuations. Meta and Microsoft's warnings point to the challenges companies face in pleasing investors.
The Dow Jones Industrial Average fell 184.51 points, or 0.44%, to 41,957.03, the S&P 500 lost 50.05 points, or 0.86%, to 5,763.62 and the Nasdaq Composite lost 261.19 points, or 1.40%, to 18,346.74.
Traders stuck to bets for 25-basis-point rate reductions in the Fed's November as well as December meetings after the economic data was released.
The Information Technology sector slumped 2.1%, while upbeat results from ConocoPhillips (NYSE:COP) lifted Energy shares 1%.
The day's losses took the benchmark index into negative territory for the month. The Nasdaq Composite was set to rise slightly in October, while the Dow was on track to lose more than 1%.
The VIX, Wall Street's "fear gauge", rose to a more than three-week high as investors brace for more volatility from corporate results, the upcoming U.S. presidential election and the central bank's November meeting in the next few weeks.
In results-driven moves, Estee Lauder (NYSE:EL) plummeted 22%, on track for its worst day on record after the cosmetics company withdrew its 2025 annual forecasts and cut its dividend.
Trading platform Robinhood (NASDAQ:HOOD) slumped 14.4% after its third-quarter earnings missed expectations.
Shares of Uber Technologies plunged 8% after the company forecast fourth-quarter gross bookings below expectations.
Declining issues outnumbered advancers by a 1.26-to-1 ratio on the NYSE, and by a 1.67-to-1 ratio on the Nasdaq.
The S&P 500 posted 20 new 52-week highs and five new lows, while the Nasdaq Composite recorded 37 new highs and 54 new lows.