After Microsoft (MSFT) and other businesses reporting earnings weighed on the market for much of the afternoon with dismal projections, U.S. equities recovered from significant losses to end neutral on Wednesday.
The Dow Jones Industrial Average (DJI) went positive and finished the day slightly above breakeven, while the S&P 500 (GSPC) was just flat. The heavily weighted Nasdaq Composite in technology (IXIC) fell 0.2%.
The mild earnings season hasn’t stopped investors from making gains, as reports from companies like Tesla (TSLA), IBM (IBM), and AT&T (T) are all scheduled to be released on Wednesday.
After plunging over 4% intraday after the firm released a gloomy earnings forecast, Microsoft’s shares was down merely 0.6%. Results for the most recent quarter revealed that the cloud company has declined, despite expectations for better-than-expected profitability. Its results follow the megacap giant’s previous week 10,000 layoffs, which were justified by a drive towards AI.
Separately, Microsoft’s cloud platform Azure, as well as services like Teams and Outlook, had a worldwide network outage on Wednesday morning.
Other market movements included a 1.1% dip in Texas Instruments (TXN) shares after the chipmaker reported its biggest sales decline since 2020 and a $4.17 billion reduction in revenue from $4.53 billion. After the results, other semiconductors also decreased in price.
CEO Rich Templeton said in the company’s quarterly report that “as we predicted, our results reflect decreased demand in all end sectors with the exception of automotive.”
Following Rupert Murdoch, the head of News Corp., abandoning plans for a proposed merger between Fox and News Corp., shares of Fox (FOX) and News Corp. (NWSA) increased 2.3% and 5.7%, respectively. Ten years ago, the firms were split apart.
Stocks have been rising in the first two weeks of January despite Wednesday’s falls and a few other gloomy sessions this year. Technology equities have seen the most gains, with the Nasdaq Composite up around 8% so far.
According to Gargi Chaudhuri, head of iShares investment strategy, Americas at BlackRock, “so far, price action in January 2023 bears an eerie resemblance to that in July 2022 when risk assets rallied and rates fell as investors bought into the idea of a “soft landing” – the notion that slowing growth would slow inflation and obviate the need for further Fed hikes.” As the Fed remained steadfast and continued to raise policy rates by 75 basis points in September, that argument lost credibility and price movement changed.
Fast forward to the present day, and many investors appear once more persuaded that inflation is nearly under control and that weaker growth would not only eliminate the need for more rises but also enable the Fed to cut rates before the end of the year.
Markets are pricing in a lower terminal rate as they anticipate a downshift to 25 basis points at the next meeting on January 31–February 1, despite statements from Federal Reserve members that interest rates will increase above 5%.
Markets are pricing in a 98.1% likelihood of a 0.25% hike next week, according to the CME FedWatch Tool, which measures investor expectations for rates and U.S. monetary policy. This is down somewhat from a high of 99.8% earlier this week.