4.08pm: Tech shares endure tough day
US markets ended a volatile session in subdued fashion with the Dow Jones posting its fourth consecutive day of gains (just) but with tech stocks under pressure following disappointing results from Alphabet and Microsoft.
At the close the DJIA was up 3 points at 31,840, the S&P 500 was down 28 points, or 0.74%, at 3,831 and the Nasdaq Composite slipped 228 points, or 2.04%, to 10,971.
After a weak start markets were given a boost by a lower than forecast hike to Canadian interest rates which sparked hopes that this could be a trend other central banks may follow.
"Central banks are starting to blink," said Paul Kim, chief executive officer at Simplify ETFs in New York. "It’s part of the larger trend and supports the (Fed) 'pivot' narrative."
The Dow, at one stage, advanced over 300 points but these gains were lost as the session wore on as investors turned their focus to a mixed bag of earnings which highlighted a weak economic backdrop.
Sales of newly constructed US homes plunged in September while mortgage rates hit their highest level in more than two decades, adding to the growing pile of data suggesting a softening economic landscape.
Tech stocks bore the brunt of the losses with shares in Google-parent Alphabet down 8% after the tech giant missed expectations, while Microsoft tumbled 7% after revenue guidance came in below forecasts.
12.05pm: US markets run mixed midday
US indices were mixed at midday, with a dovish hike from the Bank of Canada potentially kicking off a risk rally.
At noon, the S&P 500 was up by 0.5% at 3,876, while the Nasdaq Composite was down by 0.3% at 11,166 and the Dow Jones rose by 0.9% to 32,112 points.
Michael Hewson, chief market analyst at CMC Markets UK, said the Bank of Canada raised rates by a less-than-expected 50 basis points to 3.75%, in a move that suggests that central banks are starting to wake up to the possibility that too-aggressive rate rises could do more harm than good.
“It’s also got markets asking the question, could the Fed follow suit next week after another poor set of housing numbers from the US,” Hewson wrote in a report.
In reaction, both the Canadian and American dollars slipped, with the greenback sliding in anticipation of the US Federal Reserve’s possible slowing of its interest rate hikes, Hewson wrote.
“Weakness in the US economy does appear to be prompting a reassessment of the size and pace of hikes if recent comments from San Francisco Fed president Mary Daly are any guide. It will be interesting to see whether any of her colleagues share her concerns in the coming weeks,” Hewson wrote.
On October 21, Daly said the 4.5% to 5% range is likely where the Fed would hold interest rates. Otherwise, the Fed could find itself over tightening.
Hewson also wrote that crude oil prices have taken a leg higher in the wake of the Bank of Canada's smaller than expected rate hike.
At midday, the price of West Texas Intermediate was up by 3%, trading at US$88 a barrel.
The major movers at midday included solar power systems maker Enphase Energy, which was up by 13.8% on beating analyst estimates on 3Q earnings of US$1.25 per share.
Universal Health Services also rose by over 13%, Pinduoduo was up by 13% and pest control company Rollins was up by over 10%, a new 52-week high.
On the downside, business services company Assurant (NYSE:AIZ) hit a new 52-week low, down by 11.8%, along with cloud security firm F5, which fell by 8%, and Google parent Alphabet was down by 6.4%.
9.35am: Tech stocks drop on disappointing earnings
US stocks opened mixed on Wednesday, with the tech-heavy Nasdaq Composite in the red as weak earnings from tech giants Alphabet and Microsoft released after the bell yesterday added to investors’ ongoing growth concerns.
Just after the market opened, the Nasdaq had shed 227 points or 2% at 10,978 points and the S&P 500 was down 26 points or 0.7% at 3,883 points. The Dow Jones Industrial Average had added 70 points or 0.2% at 31,907 points.
Forex.com market analyst Fiona Cincotta said disappointing earnings from Alphabet and Microsoft had unnerved investors, pulling the Nasdaq sharply lower.
“Ad revenue growth has been a worry since Snap’s earnings last week, and Alphabet’s results have confirmed that no company is immune to the slowdown in digital ad revenue,” she said.
“Meta is due to report after the close and is expected to show ongoing struggles owing to the tough macroeconomic climate, growing competition from Tik Tok and fallout from Apple’s ad-tracker.”
6.30am: Wobble after recent gains?
US stocks were expected to open lower on Wednesday, dented by disappointing earnings from the likes of computer giant Microsoft and Alphabet, which owns YouTube and the popular search engine Google.
Futures for the Dow Jones Industrial Average were 0.2% lower in pre-market trading, while those for the S&P 500 were down 0.8%, and contracts for the Nasdaq-100 shed 1.6%.
Investors are continuing to take direction from the performance of big technology companies. Alphabet said, after hours on Tuesday, that its sales slowed as firms cut their advertising budgets while Microsoft noted that demand for its computers and other technology had weakened.
While Wall Street closed Tuesday’s regular session higher, the disappointing numbers from Alphabet after the closing bell may be acting as something of a catalyst to rein in the recent spate of buying, said James Hughes chief market analyst at scopemarkets.com.
“Much of this is stemming from optimism that the Federal Reserve will now ease off its monetary policy tightening agenda, something that yesterday’s disappointing consumer confidence figures and that earnings miss from UPS both lend credibility to,” he said.
Looking ahead, earnings news once again spans old and new companies alike, with Boeing, Ford, and Meta among the day’s higher profile releases, said Hughes, adding the latter will be especially relevant given the challenges seen at Alphabet’s YouTube division on Tuesday.
Over recent weeks investors have tended to treat softer economic data as a reason to buy stocks. Investors are beginning to hope that softer economic data will persuade US rate-setters to step back from continuing to hike interest rates aggressively, having raised interest rates by three 75 basis points hikes this year as they attempt to head off inflation which remains at around 40-year highs.
On the data front today, the focus will be on US new home sales figures for September due out at 10.00am ET which are expected to show a softening.
“Yet more dovish tones from Fed board members would be no surprise, although radio silence here could serve to erode the confidence we’ve seen building in recent days,” added Hughes.
Contact the author at jon.hopkins@proactiveinvestors.com