Stocks took a hit on Friday, primarily due to a drop in the largest technology companies, erasing the positive gains from Thursday's massive initial public offering. The Dow Jones Industrial Average, S&P 500, and Nasdaq all experienced their worst days since August 24.
The tech sell-off was triggered by software firm Adobe's earnings report, which exceeded sales and profit expectations but projected current-quarter sales in line with analyst projections. Despite beating expectations, Adobe's shares dropped 5% in Friday trading. Analysts noted that the market has high expectations for artificial intelligence (AI) companies like Adobe, which may explain the decline.
Other cutting-edge tech stocks, such as Nvidia, Meta, Amazon, and Advanced Micro Devices, also saw declines of 3% or more. Additionally, Arm, the British chip designer, fell after surging 25% in its New York debut the previous day.
One factor contributing to market volatility on Friday was the expiration of $3.4 trillion worth of stock options, making it one of the busiest options days of the year. This added volatility to an otherwise stable market, as reflected by the Chicago Board Options Exchange's VIX index, which rose 8% off its lowest level since January 2020.
Despite the recent decline, the Dow, Nasdaq, and S&P have all seen positive returns in 2023 after suffering losses in the previous year. This rally has been led by big tech stocks like Nvidia, despite the Federal Reserve's decision to raise interest rates, which typically dampens equity performance.
Looking ahead, market participants will be closely watching the Federal Reserve's Open Market Committee meeting next week. The meeting will reveal if there will be an immediate shift in the federal funds rate and provide insights into the central bank's monetary policy expectations moving forward.
Overall, the recent tech sell-off and expiration of stock options have introduced volatility to the market. However, the positive performance of major indexes in 2023 and the upcoming Fed meeting indicate that there are several factors at play that could shape market trends in the near future.