What’s Driving October’s Market Drop?

The Dow and S&P 500 ended October with their first monthly declines since April, while Halloween brought more market scares than treats. A wave of tech-sector selling on Thursday pulled down the S&P 500, and the Nasdaq Composite posted its steepest one-day drop since early September.

Analysts pointed to various factors behind the slide, including cautious guidance from Big Tech and potential pre-election anxiety. Thomas Martin, senior portfolio manager at Globalt Investments, noted that investors seem to be zeroing in on earnings reports from the “Magnificent Seven” tech giants, even though he felt most of their results were solid.

The Nasdaq Composite dropped 2.8%, its sharpest one-day percentage drop since Sept. 3, while tech sectors led the S&P 500 down 1.9%. Meanwhile, the Dow Jones Industrial Average, more weighted toward cyclical sectors, lost 0.9%. The month marked the first declines since April for the S&P 500 and Dow and the first since July for the Nasdaq.

The Invesco QQQ Trust, which tracks the Nasdaq-100, dropped 2.5%. Microsoft and Meta Platforms fell 6.1% and 4.4%, respectively, following strong earnings reports that were overshadowed by conservative revenue outlooks and continuing high costs linked to artificial intelligence.

Louis Navellier, founder of Navellier & Associates, explained that tech companies with high price-to-earnings ratios must beat expectations and provide robust guidance, a situation he describes as “priced for perfection.” Navellier also pointed to rising uncertainty around the upcoming election, as reflected in a jump in the Cboe Volatility Index, which rose above its historical average.

Despite Thursday’s losses, Microsoft remains up more than 8% this year, Meta has gained over 60%, and Nvidia is up nearly 170%. Still, rising Treasury yields—now around 4.3% on the 10-year note, up from 3.6% in mid-September—have intensified pressure on high-valuation tech stocks, as higher yields reduce the present value of future earnings.

Jonathan Krinsky, chief market technician at BTIG, noted that the S&P 500 has broken its uptrend from the August lows. He previously warned of market vulnerability in mid-October, and now suggests that the next key support level could be around 5,500-5,650.