Stocks continue Red October slide amid tech company woes

Last Updated Oct 26, 2018 10:30 AM EDT

Stocks dropped on Friday after tech giants including Amazon reported lackluster earnings, continuing an October rout that's pushed hundreds of stocks into so-called "bear" territory. 

The Dow fell 296 points, or 1.2 percent, to close at 24,688, and the Nasdaq lost 2 percent. The S&P 500 also lost ground. The majority of stocks within the S&P 500 are already either in correction or in bear territory, with the latter representing a decline of more than 20 percent. 

Disappointing earnings reports from several tech giants rattled markets, including a revenue shortfall from online retail giant Amazon. That could signal weaker-than-expected consumer spending as the important holiday season approaches, indicated by Amazon's forecast that its fourth-quarter sales will fall short of analysts' expectations. More broadly, investors are worried about the impact of President Trump's trade war and the outlook for corporate profit growth. 

"Nerves seem fragile"

"Nerves remain fragile after the sharp stock market losses in the last few weeks with every imperfect tealeaf read as a harbinger of doom," wrote analyst Fiona Cincotta of City Index in a research note. "U.S. futures are already indicating a lower start to the day based on Amazon's results late Thursday."

She added, "It is not that the [Amazon] reported a decrease in income – on the contrary, profits were at a record high – but its sales nudged lower and more importantly its expectations for the all-important fourth quarter holiday shopping period came in a touch below consensus forecasts."

Google parent company Alphabet's earnings were also below expectations. That put pressure more widely on technology stocks. Shares in Amazon were down 9 percent in premarket trading. Shares in Europe and Asia also traded lower on Friday.

The Dow Jones Industrial Average has shed more than 1,840 points — nearly 7 percent — since Oct. 3, even with Thursday's 401-point rebound.

An economic disconnect?

The nerve-wracking anxiety that's gripped the U.S. stock market seems oddly unmoored from economic reality: Despite the turbulence on Wall Street, economic growth is strong, unemployment ultra-low and consumers exceptionally confident.

Unusual for its severity, the free-fall in stock prices has occurred against the backdrop of an economic expansion that's already the second-longest on record. And it shows no sign of sputtering.

On Friday, the government is expected to report that the economy grew at a healthy 3.3 percent annual pace from July through September. In the previous quarter, the annual rate was a brisk 4.2 percent, the best in nearly four years.

Unemployment, at 3.7 percent, has reached its lowest point since 1969. And Americans' optimism over the economy, as measured by the Conference Board's consumer confidence index, is running at an 18-year high.

Never mind all that. Investors increasingly envision a constellation of concerns, from rising interest rates, intensifying tensions over trade, a slowdown in China and the prospect that U.S. corporate earnings growth will soon slow.

For stock investors, "some of the pessimism is anchored in dimming growth forecasts and rising interest rates," said Eric Lascelles, chief economist at RBC Global Asset Management. Traditionally, "those have not been friendly to stocks."

-- The Associated Press contributed to this report.