Tech Drops Drag the Indexes While Most Stocks Rise

Even with heavy headline drops in mega-cap technology, 74% of the top 1000 companies closed higher on Thursday, 8 of the 11 sectors rose, and the S&P 500 finished -1.2% from its peak. Trading volume matched habit at 100% of a typical day's volume. Thursday was a loud day that changed nothing about the market's broader footing. While the S&P 500 closed -0.4% and the Nasdaq 100 closed -1.4%, the weakness was concentrated in a handful of corporate giants rather than the wider market. The drop was led by Alphabet, which tumbled after missing quarterly earnings expectations and signaling higher capital spending.

Alphabet Inc Class C closed -12.3%. The decline followed third-quarter results that showed weaker advertising growth along with negative free cash flow. Management's commitment to higher infrastructure spending revived concerns about how quickly aggressive investments in artificial intelligence will generate profit. That pressure dragged across communications and software, leaving Communication Services trailing all groups at -6.3%.

Gains across the broader market centered in defensive and pharmaceutical shares. Health Care led the session at +2.6%, propelled by earnings gains from major drugmakers. Eli Lilly and Company closed +6.6% after the drugmaker exceeded quarterly profit expectations and lifted its full-year revenue guidance on strong sales of its obesity treatments. Merck & Co. also advanced following its own quarterly beat. Smaller companies also advanced, with the Russell 2000 closing +1.0%.

Underlying financial conditions supported that reading, showing that market stress remained isolated to tech earnings. In options markets, the VIX closed at 16.9, while the ratio between short-term and three-month volatility finished at 0.88. With the term ratio remaining below one, options markets are not signaling acute stress. Credit markets pointed to the same calm, as high-yield spreads stood at 3.14%. That spread has moved +0.02 points in recent trading.