Alphabet falls 12.6% - dragging SPY into negative territory for the day

Alphabet’s class A shares fell 12.6% Thursday, Oct. 29, their worst drop on record, after the Google parent’s third-quarter revenue and earnings missed estimates. Its class C shares fell 12.3%. Most stocks in the S&P 500 rose, but the index fell 0.3% to 7,720.39, its first loss in four sessions. The Nasdaq composite fell 1.4% to 26,184.72, and the Dow Jones Industrial Average fell 0.3% to 52,342.56. The Russell 2000 index of smaller companies rose 1% to 2,859.22.

Turning to ETFs, the State Street SPDR S&P 500 ETF, SPY, fell 0.4%. Between the two share classes, Alphabet consists of about 5% of SPY's portfolio. Alphabet alone subtracted 0.63 percentage points from SPY — enough by itself to turn the index's and the Trust's return negative for the day.

Amazon fell 4.25% during the session and then missed estimates in its report after the close. As of this writing, it has lost another 5% after the close, as of 6:03 ET.

The company reported earnings of $1.89 per share on revenue of $201.94 billion; analysts had expected $1.96 and $202.31 billion.

Amazon Web Services revenue rose 39% to $46 billion, its fastest growth in nearly five years. The company kept its 2026 capital-spending plan at about $220 billion, and CEO Andy Jassy said spending will be “meaningfully more” in 2027. Amazon is the largest holding in the State Street Consumer Discretionary Select Sector SPDR ETF (XLY), and among the largest holdings in SPY and QQQ.

The Invesco S&P 500 Equal Weight ETF, RSP, gives every company in the index the same weight, so Alphabet counts no more than the smallest stock. It rose 1.2%.

Nine of State Street's 11 sector funds rose. Only communications and technology fell.

The iShares Russell 2000 ETF, IWM, a fund of smaller companies, rose 1%, a fourth straight gain.

The State Street Health Care Select Sector SPDR ETF, XLV rose 2.4%, the best of the 11 sector funds. Eli Lilly, about 16% of the fund, rose 6.6% to a 52-week high after it beat third-quarter estimates and raised its 2026 revenue forecast to $91 billion to $92 billion from $85 billion to $87 billion. Lilly alone added about 1 percentage point to XLV.

Why Alphabet fell

Alphabet reported Wednesday that third-quarter revenue rose 25% to $127.6 billion, short of the $128.22 billion analysts expected, according to CNBC, which attributed the shortfall too advertising. Search revenue, Alphabet's largest business, rose 12% to $63.35 billion, below the $64.96 billion forecast. Google Cloud revenue rose 103% to $30.7 billion, and operating income rose 30% to $40.6 billion.

Earnings fell to $2.12 a share from $2.87 a year earlier. An $8.7 billion loss on equity securities cut 55 cents a share. Chief Financial Officer Anat Ashkenazi said on the earnings call that the loss came mainly from Alphabet’s stake in SpaceX. Excluding that loss, Alphabet earned $2.67 a share, still below the $3.02 analysts expected. It was Alphabet’s first miss on both revenue and earnings in nearly four years.

Alphabet also reported free cash flow of negative $9.1 billi0n - their second straight quarter of negative cash flow, following an outflow of $5.9 billion in Q2, according to the company's earnings release.

Bloomberg said the disappointing results revived concern that Alphabet is losing ground despite massive spending on artificial intelligence. The Wall Street Journal said search revenue disappointed and the company burned through cash faster than expected.

Alphabet's woes hit the communications sector particularly hard: The two classes of Alphabet stock comprise 23% of the State Street Communication Services Select Sector SPDR ETF, XLC. The fund fell 1.9% to its seventh consecutive loss, though the losses were mitigated by Meta Platforms, which gained 2% for the day, and pulled much of the remainder of the sector up with it.

The State Street Technology Select Sector SPDR ETF, XLK, which does not hold Alphabet, fell 1.2%. ServiceNow fell 27% after a third-quarter profit miss, and Fortinet fell 20% after results Reuters called disappointing.

Microsoft reported Wednesday and beat estimates, CNBC said, and the shares fell 0.2% on Thursday. The Invesco QQQ Trust, Series 1, QQQ, which tracks the Nasdaq-100, fell 1.4%.

Growth, inflation, and the Fed

The economy grew at a 3.4% annual rate in the third quarter, faster than the 3.1% economists expected and up from 2.2% in the second quarter, the Bureau of Economic Analysis said Thursday. Investment, consumer spending and government spending drove the increase, partly offset by a drop in exports.

A separate BEA report showed the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 3.6% in the 12 months through September, up from 3.4% in August but a tenth of a point below forecasts. Core PCE, which excludes food and energy, rose 3.1%.

Treasury bonds up; yields fall

Treasury yields fell. The 10-year yield dropped 7 basis points to 4.98%, and the 2-year yield dropped 6 basis points to 4.61%.

On Wednesday the Federal Reserve held its benchmark rate at 3.75% to 4%. "Economic activity is expanding at a strong pace," Federal Reserve Chair Kevin Warsh said at Wednesday's press conference. "But inflation remains elevated."

The growth and inflation figures were public before Thursday's opening bell. They do not account for the loss in SPY. Remove Alphabet's two share classes and that loss is gone.