Big tech earnings aren’t providing a clear story at a time when the stock market needs it.
A look at Microsoft’s results tells an investor that business-to-business spending may be on the rise again, with declines in cloud spending bottoming out. Google’s launch peak tells this investor the opposite.
The result is a feeling familiar to investors over the past month: little confidence in what might happen next. Google shares fell about 9% while Microsoft held on to a 3% gain as rising bond yields once again dragged broader indexes lower and the tech-heavy Nasdaq Composite (^IXIC) had its worst single trading day in about eight months.
“There is a real dispersion,” said Rick Rieder, global CIO at BlackRock, referring to Microsoft and Alphabet’s gains. “We are receiving a number of conflicting signals from the market. That’s why markets are so turbulent and uncertain.”
The signs Rieder mentions have been building in both directions over the past month, as the debate over the fate of the Federal Reserve in its fight to lower inflation hangs over markets.
Some of these pose risks that are beyond the norm, such as the simmering geopolitical dispute in the Middle East and the 22-day saga in Washington that ended with a new Speaker of the House, but it’s still a “good and bad” situation, according to Qontigo managing director Melissa message”. Brown.
“The good news is that the uncertainty has dissipated,” Brown told Yahoo Finance Live. “On the other hand, it may be replaced by another uncertainty about whether the government will shut down and what will really happen to spending.”
Others are more market-oriented stories. There have been suggestions that fiscal tightening driven by the Fed’s aggressive rate-hiking campaign could strangle a resilient economy. Some continue to call for further interest rate increases as the path of inflation begins to slow.
But importantly, as Rieder emphasized, not all the news is negative. The economy continued to demonstrate resilience. And with the support of a strong labor market and growing manufacturing activity, the path to a soft landing remains open.
Taken together, this puts markets in a “terrible place,” says Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.
“While upside risks remain, downside risks have increased, the outlook has become murkier, and we do not believe the pause in S&P 500 gains that we called for in early August is over,” Calvasina wrote in a note on Monday.
It maintains a 4,250 call on the S&P 500, which would be about 1.5% higher since Wednesday’s closing.
“Hunger” for earnings
Market strategists had hoped the gains would be a catalyst to pull stocks out of their recent bond-fueled rut. However, this did not happen.
Evercore ISI’s Julian Emmanuel described the current earnings season as “a relative starvation of price reactions to a positive earnings announcement,” in a research note on Wednesday.
After 128 S&P 500 companies reported entering Wednesday’s trading session, stocks that beat expectations on both earnings per share and revenue saw their shares rise 0.3% the next day. Over the last five years, these companies have seen an average of 1% up.
Missy’s hurt more too. Companies that failed to make profits and profits saw their shares fall by almost 5% the next day. Over the past five years, the move has averaged closer to 3.1%.
It has been well documented at this point that the stock market rally this year was largely driven by the “Magnificent Seven.” Collectively, the shares have the market capitalization to move markets.
But when stocks needed a boost, mega caps behaved like everything else in the markets: mixed. Microsoft and Meta initially rose following their reports. Alphabet and Tesla fell, leaving markets still without clear direction.
Josh Schafer is a reporter for Yahoo Finance.
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