Stocks opened lower Thursday and stayed there through the close as market participants wondered what another hot inflation reading means for a December rate hike. The latest batch of corporate earnings also kept a lid on sentiment, with a rare miss from Google’s parent, Alphabet ( GOOGL ), sending the mega-cap stock sharply lower — and renewing fears over big AI spending.
At the close, the tech-heavy Nasdaq Composite was down 1.4% at 26,184, the broader S&P 500 was off 0.3% at 7,720, and the blue-chip Dow Jones Industrial Average was 0.3% lower at 52,342.
Alphabet created a massive drag on the three main equity benchmarks, shedding 12.6% — its worst day ever — after the Google parent unveiled its third-quarter results.
GOOGL reported earnings of $2.67 per share, down 7% year over year, on revenue of $127.6 billion (+25% YoY). The results fell short of Wall Street’s estimates for earnings of $3.00 per share on $127.9 billion in revenue, and marked the company’s first double miss since Q4 2022.
Alphabet also reported negative free cash flow of $9.07 billion and Q3 capital expenditures of $51.4 billion. The company maintained its full-year capex forecast of $195 billion to $205 billion.
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Long-term debt, meanwhile, jumped to $125.1 billion from $21.6 billion the year prior, signaling a sharp rise in borrowing to fund its AI initiatives.
The quarter-over-quarter slowdown in Search ad revenue growth (+12% YoY in Q3 vs +17% YoY in Q2) outweighs all other points in the print, says Wedbush analyst Ygal Arounian . Worries over free cash flow and spending also weighed on the stock.
But Arounian, who has an Outperform (Buy) rating on Alphabet, believes the company is “well positioned, with a strong ecosystem that, yes, is evolving, but with the pieces in place to capitalize.” And Google, he adds, “will prove a winner as AI advertising evolves.”
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Caterpillar stock has its worst day in six years
Alphabet was the worst Dow Jones stock today, but Caterpillar ( CAT ) came in a close second. The blue chip stock sank 9.3% — its biggest one-day decline since March 9, 2020 — after the construction equipment maker reported its Q3 results.
CAT said earnings grew 45.5% year over year to $7.20 per share, more than analysts expected. But revenue of $20.7 billion (+17% YoY) fell short of the $20.8 billion Wall Street called for.
“Results reflected strong sales to users across all three primary businesses, led by 75% growth in” its Power & Energy segment, says Oppenheimer analyst Kristen Owen . This division, which supplies AI data centers, has seen impressive growth in recent quarters.
“On the outlook, CAT called for moderate year-over-year growth in Q4 despite difficult YoY comps and change in dealer inventory headwinds, supporting its unchanged mid-to-high teens FY26 revenue growth expectation,” Owen adds.
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September PCE shows inflation remains elevated
Wall Street also kept a close eye on today’s economic calendar . In the wake of what many are describing as a hawkish pause from the Federal Reserve at its October meeting , data from the Bureau of Economic Analysis (BEA) showed the Personal Consumption Expenditures (PCE) Price Index — the central bank’s preferred inflation gauge — rose 0.5% from August to September. PCE was up 3.6% year over year.
Core PCE, which excludes volatile food and energy prices, increased 0.3% month over month and was 3.1% higher than the year-ago period.
“Although the inflation data came in line with expectations, because it is higher than the prior month, it emphasizes the problem we face — inflation is not coming down to the 2% target,” says Chris Zaccarelli , chief investment officer for Northlight Asset Management.
Still, he says the current inflation level “isn’t terrible; it will just require slightly higher interest rates . And despite all of this, growth is very good.” Indeed, a separate BEA report showed the U.S. economy grew 3.4% in the third quarter.
Expectations for a December rate hike fell slightly after Thursday’s economic data. CME Group FedWatch shows futures traders are pricing in a 78% probability the Fed will increase the federal funds rate by a quarter-percentage point in December, down from 84% one day ago.
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