US stocks gyrated Wednesday morning after weak earnings from Alphabet (GOOGL) and Microsoft (MSFT) raised concerns that slowing output could dent corporate profits in the coming months.
The technology-heavy Nasdaq Composite (^IXIC) pared early losses as the index traded nearly flat by midday. Both the S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) inched higher — by 0.6% and 0.9%, respectively — during midday trading.
Stocks have rallied of late, posting three straight days of gains. The Nasdaq jumped 2.3% in Tuesday trading. After the closing bell on Tuesday, however, Microsoft posted its weakest quarterly revenue growth in five years as a strong dollar and slumping PC sales held back the tech giant’s growth. Microsoft shares sank as much as 8%, the biggest intraday drop since March 2020.
Google parent Alphabet, meanwhile, posted results that missed analysts’ revenue expectations, while YouTube recorded its first decline in digital ad revenue since the company began reporting the video unit’s performance. The company’s shares fell 8% at the open.
“The fact of the matter is, we are heading into, whether we want to call it a recession or not, we’re heading into a softer or tighter macro environment. … You hear this from all the software vendors,” RBC Capital Markets software equity analyst Rishi Jaluria told Yahoo Finance Live on Tuesday following the quarterly earnings report.
“It was disappointing,” Morningstar senior equity analyst Ali Mogharabi told Yahoo Finance Live on Tuesday. The decline in Youtube’s digital ad revenue was due in part to the “foreign currency headwinds,” but the broader picture here is the economic downturn, he explained.
“A lot of advertisers are becoming more hesitant. They’re maybe holding back a little bit on their ad spending. But at the same time, even during an economic downturn, you’re seeing the importance of that digital transition of that cloud migration,” Mogharabi said.
The downturn rippled across the tech sector. Facebook parent Meta Platforms (META) fell more than 3% in early trading, while Amazon (AMZN) dropped 4.2%.
While tech shares have been downbeat this year, mega-cap technology stocks still hold heavyweight over the major indexes. The five biggest tech firms — Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (FB), Apple (AAPL), and Amazon (AMZN) — alone represent roughly a quarter of the S&P 500 index’s market capitalization.
Earnings reports will continue to roll in Wednesday, with Facebook parent Meta Platforms and automaker Ford (F) taking the headline spots. Both are set to report after the bell.
Still, earnings this quarter have provided bits of positive corporate news. Chipotle (CMG) posted results Tuesday that slightly topped market expectations. Most of its sales numbers came from another round of menu price increases as the company navigates inflationary pressures. Spotify (SPOT), meanwhile, added more users on both its free and paid tiers than expected in the third quarter. The streaming company reported a 19% ad-revenue increase, while sales weakened due to the “challenging macro environment.”
Also on the earnings front Tuesday, some of the largest shipping companies in the US pointed to coming price hikes. The Atlanta-based United Parcel Service Inc (UPS) posted revenue gains in the third quarter of 2022 compared to the prior year, despite a pullback in global shipping demand. By late December, UPS plans to increase rates UPS Ground, Air and International services by an average of 6.9%.
Memphis, Tennessee-based rival shipping giant FedEx Corp. (FDX) also plans to increase rates by 6.9% and expects to cut between $2.2 to $2.7 billion in costs to counteract weakened global demand and light shipping volumes, which the company similarly cites as a hit to the bottomline.
Boeing on Wednesday, meanwhile, became the latest company to report a third-quarter loss and revenue that missed analysts’ expectations amid a “challenging environment.”
Also on Wall Street’s plate is Twitter’s drama-filled acquisition deal. Elon Musk has until Friday evening to close the deal on his $44 billion acquisition or face a legal battle at Delaware Chancery Court next month.
“Once Twitter deal closes on Friday (which is our expectation) and Musk sells his needed Tesla stock this 6 month painful overhang will be over and Tesla investors can finally focus on moving forward and seeing the next chapter of growth story take hold into 23 despite macro,” Wedbush Securities analyst Dan Ives wrote on Twitter following the news on the deal.
In the crypto market, Bitcoin (BTC) climbed above $20,000 for the first time in about three weeks as trade volume moves downward for the quarter.
Yields on the US Treasury bonds were lower Wednesday morning, as the dollar weakens, marking its lowest level in three weeks. As stocks have rebounded over the past week, bonds have continued to fall, marking a potential disconnect between a steady market trend this year.
North of the US, the Bank of Canada raised it benchmark rate by a half-percentage point from 3.25% to 3.75%, the highest level in nearly 14 years. Economists surveyed had expected a larger 75-basis point increase.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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