The earnings reports showed that many companies are struggling to adapt to the new reality of slower growth and higher costs. This has investors worried about the future prospects for the stock market.
The S&P 500 declined 0.8% on Tuesday, extending its losses into a second day. The Dow Jones Industrial Average lost 0.6%, while the Nasdaq Composite dropped 1.1%.
This week is earnings season, and investors are getting fourth-quarter updates from some of the biggest names in markets.
Microsoft reported its slowest sales growth in more than six years on Tuesday afternoon. This is the first of the tech titans to report.
When Microsoft shares fell 1% on Wednesday, it weighed down markets along with gloomy forecasts from companies like 3M. Tech stocks were particularly hard hit, with Amazon losing 1.5% and Salesforce falling 1%.
"When Microsoft comes out with a reason to negate the rally we've seen, it's a gut shot," said John Lynch, chief investment officer for Comerica Wealth Management. "Suddenly people aren't so confident in Tesla and Alphabet."
Boeing's quarterly results, released early Wednesday, failed to reassure investors. The company posted a surprise loss, sending shares down 1.3%. Abbott Laboratories' stock lost 1.8% after sales fell, dragged down by a drop in demand for the company's Covid-19 testing kits.
Jim Reid, a Deutsche Bank strategist, said in a Wednesday note that there has been a slight bias towards risk-off sentiment over the past 24 hours. This is partly due to some weaker-than-expected earnings releases, which have added to growing concerns about a potential U.S. recession.
AT&T was one of the bright spots on the stock market, with a 4.9% gain. The telecommunications company said it had added wireless subscribers in the latest quarter and plans to keep investing heavily in 5G technology.
Investors will be focused on Tesla's results later Wednesday, when the company is expected to report a record quarterly profit. Alphabet, Google's parent company, is expected to release its results next week.
Tesla's stock fell by 0.8% while Alphabet's stock dropped by 3.7%.
The next few weeks of quarterly results are expected to have a significant impact on the direction of the U.S. stock market, which has started 2023 with strong gains. The S&P 500 has rallied 4.6% this year through Tuesday, while the tech-focused Nasdaq Composite has jumped 8.3%.
The recent stock market rally has been driven by growing evidence that inflation may have peaked in the U.S. and expectations that the Federal Reserve will again slow the pace of its interest-rate increases at its meeting next week. However, this rally could be interrupted if corporate results worsen, investors warned. Fourth-quarter profits for companies in the S&P 500 are expected to fall 4.9%, according to FactSet data that considers both actual and estimated results.
"This year's earnings season will be the first big test for markets," said Emmanuel Cau, head of European equity strategy at Barclays. Cau noted that investors are particularly focused on guidance for the year ahead.
He said that the tone of the reporting is more cautious than usual. While growth is slowing down, the market is more likely to be interested in the future outlook than the fourth-quarter results.
In other markets, government bond yields declined on Wednesday. The yield on the 10-year U.S. Treasury note fell to 3.444%, from 3.467% the day before. Yields usually fall when bond prices rise.
Oil prices rose slightly, with Brent crude, the international benchmark, recovering from earlier losses to trade at $85.88 a barrel.
The Stoxx Europe 600 index weakened on Thursday, with most European markets trading lower. The index was down 0.3% in recent trading.
Asian indexes were mostly higher in trading on Wednesday. Japan’s Nikkei 225 rose by around 0.4%, while South Korea’s Kospi Composite gained 1.4%. In India, however, the S&P BSE Sensex Index declined by 1.3% after the short-selling firm Hindenburg Research published a skeptical report about companies tied to India’s richest man, Gautam Adani. Indexes in Hong Kong and mainland China will remain closed for Lunar New Year holidays.
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