Stocks sink after Microsoft outlook disappoints

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US stocks tumbled at the start of Wednesday’s session as weak earnings expectations from Microsoft (MSFT) dampened the outlook for technology stocks, weighing on the broader market.

The S&P 500 (^GSPC) fell 1.2% at the open, while the Dow Jones Industrial Average (^DJI) lost 250 points, or about 0.8%. The tech-heavy Nasdaq Composite (^IXIC) fell 1.9%.

Investors continued to ride through a lackluster earnings season, with reports from names like Tesla (TSLA), IBM (IBM) and AT&T (T) all lined up for Wednesday.

Shares of Microsoft fell 3.5% Wednesday morning after the company issued weak earnings guidance and its latest quarter results showed cloud business slowing, offsetting optimism about better-than-expected earnings. The results come after the megacap giant laid off about 10,000 employees last week, citing a push toward AI.

Separately, Microsoft experienced a global network outage in its Azure cloud platform on Wednesday morning, along with offerings such as Teams and Outlook.

Elsewhere in stock moves, shares of Texas Instruments (TXN) fell 1.6% in early trading Wednesday after the chipmaker posted its worst revenue decline since 2020, as revenue fell from $4.53 billion to $4.17 billion. Other semiconductors also fell as a result of the results.

“As we expected, our results reflect weaker demand in all end markets, with the exception of the automotive sector,” CEO Rich Templeton said in the company’s earnings statement.

The shares of Fox (FOX) and News Corp. (NWSA) rose 2% and 6.7%, respectively, after media magnate Rupert Murdoch scrapped plans for a proposed merger between Fox and News Corp. The companies separated ten years ago.

An exterior view of the Federal Reserve Bank of New York on January 18, 2023 in New York City. – Wall Street stocks rose early on January 18, 2023, after allaying concerns about further moves by the Federal Reserve to aggressively curb inflation following the latest US economic data. (Photo by ANGELA WEISS / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

Despite a mixed finish on Tuesday and a few dismal sessions this year, stocks were on an upward path in the first few weeks of January. Gains were mostly focused on technology stocks, with the Nasdaq Composite up about 8% year to date.

So far, the price action in January 2023 bears an uncanny resemblance to that of July 2022, when risky assets rose and interest rates fell as investors accepted the idea of ​​a ‘soft landing’ – the idea that slowing growth would slow inflation and would eliminate the need for further Fed hikes,” Gargi Chaudhuri, head of iShares Investment Strategy, Americas at BlackRock, said in a note. increased 75 basis points.”

“Many investors seem once again convinced that inflation is all but beaten and that slower growth will not only remove the need for further hikes, but will even allow the Fed to cut rates before the end of the year.” she added. .

Despite reports from Federal Reserve policymakers that interest rates will rise above 5%, markets are pricing in lower closing rates as they expect a cutback to 25 basis points at the next meeting from January 31 to February. 1.

The CME FedWatch Tool, a tool that measures investor expectations for US interest rates and monetary policy, shows markets are pricing in a 98.1% chance of a 0.25% rise next week – a slight decline from compared to the 99.8% earlier this week.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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