NEW YORK (AP) – Wall Street weakened Wednesday on worries about corporate earnings after a mixed set of earnings and forecast reports from Microsoft and others.
The S&P 500 index was down 0.9% in midday trading after nearly doubling earlier in the morning. After hitting a seven-week high on Monday, it is on pace for a second move down. The Dow Jones Industrial Average was down 199 points, or 0.6%, at 33,534 as of 12:08 a.m. ET, and the Nasdaq Composite was down 1.2%.
Microsoft helped lead lower with a 1% drop after it forecast upcoming results that fell short of some analysts’ expectations. In particular, they pointed to expectations of a slowdown in growth in the Azure cloud business.
Microsoft is one of Wall Street’s dominant stocks because it is one of the largest, giving its stock more leverage over the S&P 500 than others. Not only that, analysts say Microsoft offers one of the best windows into corporate spending power because so many businesses use its software and services.
Other shares in the cloud computing industry also fell after Microsoft’s forecast. Snowflake lost 4.1% and Amazon fell 1.4%.
Concerns are growing that corporate profits are set to shrink across the board as the economy buckles under the weight of rising interest rates and persistently high inflation. Analysts are predicting that S&P 500 companies will report their first decline in quarterly earnings per share in the coming weeks since 2020, when the pandemic ravaged the economy.
Intuitive Surgical fell 5.1% and Nasdaq Inc., the company behind the Nasdaq stock market, fell 7.4% after both reported weaker-than-expected results.
Texas Instruments fell 1.5% despite reporting better-than-expected profit and revenue. Markets were more interested in the company’s forecast for the first three months of 2023. Company officials said they expect demand to continue to decline in all of its non-auto markets.
On the winning side was AT&T, which rose 5.2% after reporting a better-than-expected profit.
Other big tech companies are scheduled to report results after the close of business for the day, including Tesla and IBM.
The level of cash and profit that companies produce is one of the main levers that determine stock prices on Wall Street. The other big one depends largely on interest rates, and there’s still a big gap between what investors and the Federal Reserve see coming later this year.
Almost everyone expects the Fed to raise its key overnight interest rate by 0.25 percentage points on February 1. That would be another drop in the size of the Fed’s rate hikes, from 0.50 point last month and four straight 0.75 point hikes before that. The slowdown in inflation since the summer peak is raising hopes that the Fed will exert 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 later this year. The Federal Reserve, meanwhile, was adamant it would not. He says he wants to keep rates high until at least the end of the year to ensure high inflation is effectively suppressed.
Higher rates hurt the economy by making borrowing more expensive for businesses and households. They also hurt the prices of stocks and other investments.
The yield on the 10-year Treasury, which helps set interest rates for mortgages and other loans that dictate the economy, rose to 3.47% from 3.46% late Tuesday. The two-year yield, moving more against expectations for the Fed, fell to 4.15% from 4.21%.
In overseas stock markets, India’s Sensex lost 1.2% after prominent 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, and the group’s chief financial officer called the report “a malicious combination of selective disinformation and outdated, unsubstantiated and discredited allegations that have been tested and rejected by India’s highest courts.”
Elsewhere, European shares were slightly lower. Japanese and South Korean stocks rose, while Chinese markets remained closed for holidays.
AP Business Writers Yuri Kageyama and Matt Ott contributed.
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