Stocks Lower, Fed In Focus, Microsoft Slumps, Google Surges, Meta

Five things you need to know before the market opens on Wednesday, July 26:

1. — Stock Futures Slip Lower As Fed Rate Decision Looms

U.S. equity futures nudged lower Wednesday, while the dollar softened against its global peers and Treasury yields eased, as investors looked to a key Federal Reserve rate decision while navigating another busy session for corporate earnings on Wall Street.

The Fed is likely to lift its benchmark lending rate to the highest in 22 years later today in Washington as part of its ongoing effort to tame inflation in the world’s largest economy. The central bank’s rate path beyond this afternoon, however, remains a subject for intense debate as consumer price pressures cool and the broader economy remains surprisingly resilient. 

That was evident in a stronger-than-expected reading for The Conference Board’s benchmark survey of consumer confidence for the month of July, which jumped to the highest levels in more than three years, as well as another disappointing Treasury bond auction yesterday.

The $43 billion sale of 5-year notes, which saw muted interest from foreign buyers as traders bet the Fed can hold rates at elevated levels, while not necessarily hiking again, for an extended period of time.

Benchmark 2-year Treasury note yields were marked modestly lower at 4.860% in the overnight session, while 10-year notes drifted to 3.881%. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.2% lower at 101.148.

A pair of big tech earnings in the after-hours session yesterday are likely to influence today’s opening bell, as well, with Microsoft taking around 97 points off the Dow Jones Industrial Average and Google providing a solid boost for the Nasdaq. 

Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 were indicating a 2 point opening bell dip while those linked to the Dow Jones Industrial Average were priced for a 55 point move to the downside. Nasdaq futures were down 20 points.

The Europe-wide Stoxx 600 was marked 0.46% higher in early Frankfurt trading while Britain’s FTSE 100 fell 0.3% in London.

Overnight in Asia, the region-wide MSCI ex-Japan index slipped 0.02% into the close of trading while the Nikkei 225 was marked 0.04% lower in Tokyo.

2. — Fed Rate Path In Focus As July Hike Locked-In

The Federal Reserve will publish its July policy decision later this afternoon, with markets split as to whether this will be the final rate hike of its current tightening cycle as Chairman Jerome Powell continues to stress the dangers of elevated inflation. 

The CME Group’s FedWatch, a real-time tracker of interest rate bets, suggests traders are pricing in a 98.9% chance that the central bank lifts its benchmark Fed Funds rate by a quarter point, to a range of between 5.255 and 5.5%, later today in Washington. Beyond that, however, markets are indicating no better than a 36% chance that Powell and his colleagues will follow-through with another increase between now and the end of the year.

Slowing inflation, which eased to 3% last month, as well as a weakening economy could compel the Fed to take its foot off of the rate hike accelerator, although a number of data points between now and the central bank’s meeting in September — as well as Powell’s keynote speech at the Jackson Hole symposium in August — could alter or confirm the Fed’s policy path.

“We expect today’s inevitable rate hike to be the
last, but we do not expect Chair Powell to say so,” said Ian Shepherdson of Pantheon Macroeconomics. “Powell has made it abundantly
clear, on numerous occasions, that he needs to see
the data move decisively in the right direction for a few
months before he will be willing to declare victory.

3. — Microsoft Slumps As AI Investment Cost Offsets Solid Q4 Earnings

Microsoft  (MSFT) – Get Free Report shares slumped lower in pre-market trading after the tech giant topped Street earnings forecasts as it looks to leverage its AI leadership into its coming fiscal year.

Microsoft’s spending accelerated by 37%, to $10.7 billion, however, over the quarter in order to meet surging demand for its AI-related products, with further capital expenditures planned for the coming financial year.

That pressured the stock in after-hours trading, clouding in part a solid 20.6% rise in adjusted earnings, which came in at $2.69 per share. Net income rose 20% to $20.1 billion.

Microsoft said revenues for Azure, its flagship cloud division, rose 26% from last year over the three months ending in June, just ahead of the 25% Street forecast, while overall group revenue rose 8.4% to $56.2 billion.

Microsoft shares were marked 4.2% lower in pre-market trading to indicate a Monday opening bell price of $336.20 each.

4. — Google Surges As Cloud, AI Plans Impress, CFO Porat Gets New Role

Google parent Alphabet  (GOOGL) – Get Free Report shares surged higher in pre-market trading after it blasted Street earnings forecasts and elevated their highly-respected CFO, Ruth Porat, to a newly-created role within the the tech and ad giant.

Porat, Google said, will transition to the newly-created role of president and chief investment officer of Alphabet and Google, starting on Sept. 1, ostensibly to both advise and oversee group spending and investments.

Google’s bottom line came in at $1.44 per share over the three months ending in June, compared to last year’s split-adjusted figure of $1.21 per share, a tally that top Street forecasts by around 10 cents per share.

Group revenues rose 9.9% from last year to $74.6 billion, a tally that topped the Street consensus forecast of $72.8 billion, as ad sales rose 3.3% to $58.14 billion. Google cloud revenues were up $8.03 billion, also firmly ahead of analysts’ estimates.

Google shares were marked 6.87% higher in pre-market trading to indicate an opening bell price of $130.60 each.

5. — Meta Earnings On Deck As Big Tech Updates Dominate After-Hours Trading

Meta Platforms  (META) – Get Free Report shares were marked higher in pre-market trading ahead of the social media giant’s second quarter earnings after the close of trading. 

Meta, much like Google and Microsoft, is expected to highlight its AI bona fides alongside its ambitions for Threads, the new micro-blogging app it launched last month in order to take advantage of the seemingly unending series of changes taking place at Elon Musk’s Twitter.

Meta also unveiled a series of new AI-related tools it plans to roll-out across its various apps earlier this month, including a chatbot similar to ChatGPT for Facebook Messenger and WhatsApp and has said its been working with advertisers in testing consumer-facing generative AI techniques.

A more significant near-term issue for Meta, however, is the pace of growth in digital ad spending, which comprises the vast majority of its revenue stream. The bulk of that, of course, comes from small businesses, which are far more exposed to cyclical conditions than their international counterparts.

Analysts expect Meta to post a bottom line of $2.92 per share, up 18.7% from last year, with revenues up 8% to $31.1 billion

 Meta shares were marked 1.7% higher in pre-market trading to indicate an opening bell price of $299.50 each.

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