ES Down 1%: Amazon and Intel Drag Tech Lower, ECI and Musalem on Deck

The Essentials

• The pullback is coming from tech, not the broad market. Amazon (AMZN) was down 7.2% in premarket trading after last night's earnings, and Intel (INTC) was plunging 25%. Around 9:00 a.m. (Paris time), the ES contract was down 77.5 points (-1%), the Nasdaq 100 E-mini was off 2.16%, and the Dow E-mini was flat (-0.05%). The index is being dragged down by its heaviest weights.
• Thursday's session had the same structure. The S&P 500 finished at 7,720.39 (-0.30%), even though 9 of 11 sectors rose. Health care (XLV) gained 2.4% and real estate (XLRE) 2.2%. Advancers outnumbered decliners nearly two to one on the NYSE. Alphabet (GOOGL) had the worst day in its history (-12.6%).
• Oil stays above $100. Brent is up 0.97% at $111.88 and WTI up 0.96% at $102.98. Negotiations between the United States and Iran remain stalled.
• The Fed is expected to hike in December. According to CME FedWatch, the probability of a 25 bp hike is 79.6%. The Employment Cost Index (ECI) is released at 1:30 p.m. Alberto Musalem, president of the St. Louis Fed, speaks at 5:30 p.m.
• Oil majors and AbbVie report before the open. ExxonMobil (XOM), Chevron (CVX), and AbbVie (ABBV) are on deck. It is also the last day of the month, with portfolio rebalancing expected into the close.

Watch the schedule: the United States stays on daylight saving time until November 1. The US cash session therefore opens at 2:30 p.m. (Paris time) this week, not 3:30 p.m.

Overnight and Europe

Asia

• Japan. The Nikkei 225 closed down 2.33% at 63,154. The Bank of Japan left its rate at 1.25%. However, it will sell its equity ETFs faster: the holdings would be unwound in 43 years, versus 112 years at the previous pace. For Japanese equities, that's one more seller.
• China and Hong Kong. The Hang Seng gained 1.50% and the Shanghai Composite lost 1.39%. Large Chinese stocks are heading for their worst month in a decade, on concerns about demand for semiconductors and AI components.

Europe

• The STOXX 600 was down 0.29% at 647.23 in mid-morning trading.
• The technology sector was down 2%.
• Before the open, Euro Stoxx 50 futures were down 0.43% and DAX futures down 0.2% at 26,107.
• In France, October inflation came in above expectations, at its highest since December 2023.

What has changed since Thursday's close

• S&P 500 futures were down 0.89% around 7:20 a.m. The decline deepened to -1% around 9:00 a.m.
• The Nasdaq 100 fell roughly twice as fast as the S&P 500, and the Dow is holding up. Mega-cap tech is being sold while the rest of the market holds firm.
• For the cap-weighted S&P 500, the gap between its level and its equal-weight version should stay wide today.

Today's Calendar

ECI. Year over year, employment costs were rising 3.4% in the second quarter, and the wages component 0.9% quarter over quarter.

• If the ECI tops 0.9%, a December Fed hike would become a near certainty. Yields would climb back, weighing on growth stocks that are already being sold.
• If it comes in at 0.7% or lower, it would extend the overnight bond rally. That would support real estate and utilities, without offsetting Amazon's decline.

Chicago PMI. A print well below 56 would add slowdown concerns to inflation worries.

Fed and Rates

Wednesday's decision. The Fed held rates in the 3.75% to 4.00% range, six weeks after the September hike. The vote was 10 to 2. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted for an additional quarter-point hike.

Kevin Warsh. The Fed chair announced that starting next fall, the committee will vote on rates at fewer meetings. The statement repeats, for the third meeting in a row, that the committee "will ensure" price stability.

Musalem at 5:30 p.m. This is the first remarks by a Fed official since the decision. With headline PCE inflation at 3.6% year over year and core inflation at 3.1%, a tone favoring a quick hike would confirm expectations for December.

Market expectations

• CME FedWatch: 79.6% odds of a 25 bp hike in December, 20.4% for a hold.
• According to LSEG data, the market is pricing more than 50 bp of hikes by mid-2027.

Yields

• The US 10-year lost more than 7 bp during the Tokyo session and is trading around 4.92%.
• It is heading for its biggest monthly decline since December 2023.
• The Japanese 10-year lost 5.5 bp, to 2.780%.

Takeaway. Bonds are playing their safe-haven role against the tech selloff. That limits the pressure on rate-sensitive stocks.

Credit. AI spending is increasingly being financed with debt:

• Microsoft (MSFT) raised $25B in bonds on Thursday.
• Alphabet raised $29B in debt and issued $12.4B in new shares.

Corporate Earnings

Amazon. AWS posted its fastest growth in nearly five years. Operating margin hit a record 13.9%. Yet the market is focusing on the quarter's heavy cash outflow and another increase in capital spending announced for next year. With a weight of about 4%, a 7% drop alone takes nearly 0.3 point off the index.

Spillover to semiconductors. Nvidia (NVDA) was down 2.5% in premarket trading, AMD 7%, and Broadcom (AVGO) about 4%.

Intel. The company warns it will burn cash this year, due to:

• a weak PC market;
• production bottlenecks;
• heavy expansion spending.

Together with Amazon, Intel could lose about $300B in market cap.

Alphabet. Google Cloud doubled to $30.7B in revenue. But search, at $63.4B vs. $64.9B expected, is raising concerns about competition from AI assistants. ServiceNow (NOW, -27%) and Fortinet (FTNT, -20.1%) also plunged Thursday. The communication services sector is heading for its worst month since April 2022.

Gilead. The contrast with tech is stark. Health care, already leading on Thursday, has fresh support.

ExxonMobil. The company has already indicated that refining margins added about $4.5B to its earnings. It also flagged hedging losses tied to disruptions in the Middle East. With Brent above $110, the market will be watching buybacks and production.

AbbVie. The market expects a raise to full-year guidance. The stock trades at 19 times forward earnings.

Big picture. Strong numbers from ExxonMobil, Chevron, and AbbVie would reinforce the rotation into energy and health care. Their combined weight (about 2%), however, remains far smaller than that of the tech stocks being sold.

Geopolitics and Conflicts

United States – Iran

• Mediation. Qatari mediators returned to Tehran this morning, in coordination with Washington.
• Positions remain far apart. Washington wants to include the nuclear issue from the outset. Tehran first demands an end to the US blockade of its ports and the lifting of sanctions on its oil exports.
• Iranian side. Mohammad Bagher Ghalibaf, speaker of Parliament, is standing by Tehran's seven conditions for ending the conflict.
• US side. Donald Trump says his vice president JD Vance's outreach to Iran concerned medical supplies.
• Market transmission channel: oil, then inflation, then the Fed. Crude is up about 70% year over year.

Eurozone: Lagarde's departure, tensions in France

• Christine Lagarde will step down as ECB president on February 7, while the central bank is in the middle of a rate-hiking cycle.
• In France, political turmoil and public debt have pushed bond yields to multi-year highs.
• Market transmission channel: the euro and the European risk premium.

US Midterm Elections

• The vote takes place Tuesday, November 3. Kevin Warsh said politics played "no role" in Wednesday's decision.
• Market transmission channel: a possible risk premium heading into the weekend.

Oil and Commodities

• Brent is up 0.97% at $111.88 and WTI up 0.96% at $102.98. For October, crude is up about 14%.
• Today's driver is the lack of progress in negotiations between the United States and Iran.

Direct effect. The S&P 500 energy sector benefits from these prices, and ExxonMobil and Chevron earnings come just before the open.

Indirect effect. A barrel above $100 feeds inflation (headline PCE at 3.6%) and expectations of Fed hikes. That holds back any rerating of growth stocks. A pullback in crude on news from the Qatari mediation would be the main potential upside catalyst.

Dollar and Volatility

• VIX. The volatility index closed Thursday up 1.7% at 17.20. That's a moderate level given Alphabet's drop, confirming stress concentrated in a handful of stocks. With ES at -1%, the VIX should climb toward 18-20 at the open. A sharp move beyond that level would signal the selling is spilling over beyond tech.
• Dollar. Foreign central banks weighed this week: the BoJ's rate hold and Lagarde's succession at the ECB. Expectations of Fed hikes support the greenback. The overnight drop in yields works in the opposite direction.

Key Watch Points for the Session

1. 1:30 p.m. – ECI. A print of 0.9% or higher would push yields back up and deepen the decline in growth stocks. At 0.7% or lower, the bond rally would extend.
2. Before 2:30 p.m. – ExxonMobil, Chevron, AbbVie. The reactions in these stocks will show whether Thursday's rotation continues.
3. 2:30 p.m. – Open. The key is the gap between the Nasdaq 100 and the Dow. Positive market breadth despite a falling index would repeat Thursday's pattern. Negative breadth would signal broad-based selling.
4. 2:45 p.m. – Chicago PMI (forecast 56.1).
5. 4:00 p.m. – Chevron conference call. The market will watch for commentary on Middle East supply.
6. 5:30 p.m. – Musalem. A tone favoring a quick hike would confirm December.
7. Close (9:00 p.m.). Month-end rebalancing. The S&P 500 was still on track to finish the week and the month higher.

What would invalidate the morning scenario: a rebound in Amazon and Nvidia within the first hour, or a drop in Brent on news from Tehran.