Wall Street plunges on corporate profit concerns

Commentary

NEW YORK (AP) — Wall Street is weakening Wednesday on concerns about corporate earnings following a mixed set of earnings reports and forecasts from Microsoft and others.

The S&P 500 was down 1.4% in early trading, on track for a second step lower after hitting its highest level in seven weeks on Monday. The Dow Jones Industrial Average was down 314 points, or 0.9%, to 33,423, as of 9:55 a.m. ET, and the Nasdaq Composite was down 2.1%.

Microsoft was helping lead the way lower with a 4.4% drop after it reported weaker-than-expected revenue growth for the final three months of 2022. Perhaps most importantly, it gave a forecast of the upcoming results that did not meet the expectations of some analysts. They pointed in particular to expectations of slowing growth in its Azure cloud business.

Microsoft is one of Wall Street’s dominant stocks because it’s one of the largest, giving its stock movements more influence over the S&P 500 than others. Not only that, analysts say Microsoft offers one of the best windows into the strength of corporate spending because of the number of companies using its software and services.

Concerns are growing that corporate profits will fall across the board due to the slowing economy and costs that continue to rise amid high inflation. Analysts forecast that companies in the S&P 500 over the next two weeks will report their first drop in quarterly earnings per share since the pandemic crushed the economy in 2020.

Intuitive Surgical fell 6.9%, and Nasdaq Inc., the company behind the Nasdaq Stock Market, fell 7.1% for two of the biggest losses in the S&P 500 after both reported weaker-than-expected quarterly results. analysts expected.

On the winning side was AT&T, which rose 5.1% after reporting a higher-than-expected profit.

The level of cash and profits that companies produce is one of the main levers that set stock prices on Wall Street. The other big issue hinges heavily on interest rates, and there’s still a huge disconnect between what investors and the Federal Reserve expect to come later this year.

Almost everyone expects the Fed to raise its key overnight rate by 0.25 percentage point on February 1. That would be another downward shift in the size of the Fed’s rate hikes, down from last month’s 0.50 point and the previous four consecutive 0.75 point hikes. . A slowdown in inflation from a summer peak is raising hopes that the Fed will apply less additional pressure on the economy.

Many investors expect inflation to continue to cool, and are betting that the Fed will actually start cutting interest rates towards the end of this year. In the meantime, the Federal Reserve has been adamant that it won’t and wants to keep rates high to ensure that high inflation is actually stamped out.

Higher rates hurt the economy by making it more expensive for businesses and households to borrow. They also hurt stock prices and other investments.

The 10-year Treasury yield, which helps set rates on mortgages and other loans that dictate the economy, fell to 3.44% from 3.46% late Tuesday. The two-year yield, which is driven more by Fed expectations, fell to 4.12% from 4.21%.

In overseas stock markets, India’s Sensex in Mumbai lost 1.2% after a leading short-selling firm, Hindenburg Research, accused conglomerate Adani Group of stock manipulation and accounting fraud. Adani was founded by one of the world’s richest men, with the group’s chief financial officer calling the report “a malicious combination of selective misinformation and outdated, unsubstantiated and discredited allegations that have been proven and rejected by the highest courts.” of India”.

Elsewhere, European stocks were modestly lower. Japanese and South Korean stocks rose, while Chinese markets were closed for the holidays.

AP business writers Yuri Kageyama and Matt Ott contributed.

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