Negative Reaction To Tech Earnings May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with the Nasdaq futures showing a particularly steep drop.

The downward momentum for the tech-heavy Nasdaq comes amid a negative reaction to earnings news from tech giants Microsoft (MSFT) and Alphabet (GOOGL).

Shares of Microsoft are plunging by 6.8 percent in pre-market trading after the software giant reported better than expected fiscal first quarter results but provided disappointing guidance.

Google parent Alphabet is also tumbling by 6.8 percent after reporting third quarter results that missed analyst estimates on both the top and bottom lines.

Meanwhile, shares of Kraft Heinz (KHC) are seeing significant pre-market strength after the food giant reported better than expected third quarter results.

Stocks moved sharply higher over the course of the trading day on Tuesday, extending the rally seen over the two preceding sessions. With the continued advance, the major averages all reached their best closing levels in over a month.

The major averages reached new highs in the final hour of trading but gave back some ground going into the close. The Dow jumped 337.12 points or 1.1 percent at 31,836.74, the Nasdaq soared 246.50 points or 2.3 percent to 11,199.12 and the S&P 500 surged 61.77 points or 1.6 percent to 3,859.11.

The extended rally on Wall Street came amid a sharp pullback by treasury yields, with the yield on the benchmark ten-year note showing a steep drop after ending the previous session at a fourteen-year closing high.

The pullback by treasury yields came as traders continue to express optimism the Federal Reserve will signal a slower pace of interest rate hikes following its meeting next week.

The Fed is widely expected to raise interest rates by another 75 basis points next week, although CME Group’s FedWatch Tool shows the chances for a 50 or 75 basis point rate hike in December are split roughly fifty-fifty.

While public comments from Fed officials have largely been hawkish, a recent report from the Wall Street Journal suggested some are growing uneasy about the impact the aggressive rate hikes are having on the economy.

The markets also benefited from a positive reaction to the latest earnings news, with General Motors (GM) and Coca-Cola (KO) posting strong gains after reporting better than expected third quarter earnings.

Traders may also have been expressing optimism about the upcoming release of quarterly results from several tech giants.

Interest rate sensitive commercial real estate stocks turned in some of market’s best performances, with the Dow Jones U.S. Real Estate Index spiking by 4.0 percent.

Optimism about the Fed slowing the pace of rate hikes also contributed to substantial strength among housing stocks, as reflected by the 4.0 percent surge by the Philadelphia Housing Sector Index.

Networking stocks also saw considerable strength on the day, driving the NYSE Arca Networking Index up by 3.4 percent to its best closing level in over a month.

Tobacco, computer hardware, chemical and telecom stocks also moved notably higher, reflecting broad based buying interest.

Commodity, Currency Markets

Crude oil futures are jumping $1.01 to $86.33 a barrel after climbing $0.74 to $85.32 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,670.40, up $12.40 compared to the previous session’s close of $1,658. On Tuesday, gold inched up $3.90.

On the currency front, the U.S. dollar is trading at 147.21 yen compared to the 147.93 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0007 compared to yesterday’s $0.9966.

Asia

Asian stocks advanced on Wednesday as weak U.S. data released overnight boosted expectations of a less hawkish Federal Reserve.

Investors are pricing in a smaller interest rate hike in December after a 75 basis point increase in November. Third-quarter U.S. GDP data, due later this week, is expected to offer more clues on the economic and rate outlook.

Regional stocks gave up some early gains in the wake of unexpectedly weak earnings from technology giants Alphabet and Microsoft.

Chinese and Hong Kong stocks rose notably, recovering further from a sharp sell-off earlier this week on concerns that President Xi Jinping will continue with his ideology-driven approach at the cost of economic growth.

China’s Shanghai Composite Index advanced 0.8 percent to 2,999.50, while Hong Kong’s Hang Seng Index gained 1.0 percent to close at 15,317.67.

Japanese shares rose for the third consecutive session to reach a seven-week high. The Nikkei 225 Index climbed 0.7 percent to 27,431.84, while the broader Topix ended 0.6 percent higher at 1,918.21.

Denka shares surged 6.4 percent after the chemical products manufacturer announced it would exit its cement business. Shipping companies led losses, with Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha both falling around 3 percent.

The Japanese yen continued weakening against the dollar as traders extended beets against currency market intervention by the government. Yields fell sharply after the Bank of Japan again said it would increase bond buying operations.

Seoul stocks gained on hopes for slower U.S. rate hikes. The Kospi rose 0.7 percent to 2,249.56. Samsung Electronics and Samsung SDI both jumped about 3 percent. Battery maker LG Energy Solution surged 3.5 percent after reporting a turnaround in the third-quarter earnings.

Australian markets ended off their day’s highs after data showed inflation reached a 32-year high last quarter, pointing to more economic ructions and putting additional pressure on the Reserve Bank to raise interest rates further.

The benchmark S&P/ASX 200 Index inched up 0.2 percent to 6,810.90, while the broader All Ordinaries Index closed 0.2 percent higher at 7,005.10.

Coles Group, the second-largest supermarket chain in the country, fell 2.7 percent after it flagged rising cost pressures due to elevated inflation and adverse weather.

Europe

European stocks are turning in a mixed performance in choppy trading on Wednesday, as earnings proved to be a mixed bag and investors braced for the European Central Bank’s interest rate decision on Thursday. The ECB is widely expected to raise rates by 75 basis points amid a looming recession.

While the German DAX Index is up by 0.1 percent, the French CAC 40 Index is down by 0.3 percent and the U.K.’s FTSE 100 Index is down by 0.6 percent.

Dutch semiconductor supplier ASM has moved sharply lower after warning of the impact of U.S. curbs on its Chinese operations.

Heineken has also plunged. After beer sales missed estimates, the world’s second-largest brewer warned that it is seeing signs of weakness in consumer demand.

WPP has also tumbled in London after the world’s largest advertising group downgraded its annual margin guidance and warned of possible economic headwinds.

Consumer goods company Reckitt Benckiser has also moved notably lower after reporting a decline in sales volumes in the third quarter.

British lender Barclays has also moved to the downside despite reporting better-than-expected profit in the third quarter.

Spanish lender Santander has also come under pressure after announcing an increase in loan loss provisions and costs.

German energy major Uniper SE has also plummeted. Based on preliminary results, the company said it expects an adjusted net loss of 3.2 billion euros ($3.16 billion) for the nine months to end-September.

Sportswear maker PUMA has also fallen after saying it is lagging somewhat behind inflation with its price increases.

Meanwhile, Swedish construction firm Skanska has surged after its third-quarter profit topped expectations.

Italian bank UniCredit has also shown a significant move to the upside after raising its 2022 profit forecast
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Precious metals mining firm Fresnillo has also jumped after posting solid quarterly production figures and backing its 2022 production guidance.

Thales has also advanced in Paris. The maker of electrical systems for industries backed its full-year guidance after reporting higher sales and order intake in its first nine months of fiscal 2022.

Sodexo has also risen. The food services and facilities management company reported that its profit attributable to equity holders of the parent for fiscal year 2022 surged to 695 million euros from 139 million euros last year.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on new home sales in the month of September at 10 am ET.

New home sales are expected to plunge by 14.6 percent to an annual rate of 585,000 in September after soaring by 28.8 percent to a rate of 685,000 in August.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended October 21st.

Crude oil inventories are expected to inch up by 0.2 million barrels after falling by 1.7 million barrels in the previous week.

The Treasury Department is scheduled to announce the results of this month’s auction of $43 billion worth of five-year notes at 1 pm ET.

Stocks In Focus

Shares of Mattel (MAT) are seeing significant pre-market weakness after the toymaker reported mixed third quarter results and lowered its full-year earnings guidance.

Streaming service Spotify (SPOT) may also come under pressure after reporting a wider than expected third quarter loss.

On the other hand, shares of Harley-Davidson (HOG) are likely to see initial strength after the motorcycle maker reported third quarter result that beat analyst estimates on both the top and bottom lines.

Credit card giant Visa (V) may also move to the upside after reporting better than expected third quarter results.