Five things you need to know before the market opens on Wednesday, October 26:
1. — Stocks Futures Mixed As Big Tech Earnings Spook Markets
U.S. equity futures traded mixed Wednesday, while the dollar extended its recent decline and Treasury bond yields slumped, as investors worried that a string of grim earnings and forecasts from major American companies sparked renewed concern for the fate of the world’s biggest economy.
Weaker-than-expected earnings from Google parent Alphabet, a softer outlook from Microsoft and a downbeat forecast on chip demand from Texas Instruments rounded out a trio of tech updates that point to renewed weakness in the global economy after the close of trading last night.
Further updates from toymaker Mattel, which cut its near-term outlook, only added to the gloom, offsetting a relatively optimistic forecast for consumer spending from Visa.
Wall Street’s reaction Wednesday, however, may be more linked to action in the bond markets, as weakening growth prospects drive investors into the safety of U.S. Treasury bonds, pulling yield firmly lower in overnight trading.
Benchmark 10-year notes were marked another 5 basis points lower at 4.037%, while 2-year notes eased to 4.42%. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, fell another 0.8% in overnight trading to a three-week low of 110.035, offsetting the likely impact of big declines for Microsoft and Google on the major U.S. indices.
The yield and dollar pullbacks are also paring bets on another jumbo Fed rate hike in December, and while the odds of a 75 basis point move next week are locked-in at 97.5%, the chances of a follow-on move in December have fallen to 46.8%, according to the CME Group’s FedWatch, as investors grow more concerned for the broader economy’s near-term prospects.
On Wall Street, futures contracts tied to the S&P 500, which is up 7.6% for the month, are indicating a 17 point pullback while those linked to the Dow Jones Industrial Average are priced for a 20 point gain. The tech-focused Nasdaq is priced for a 155 point decline on the back of Google and Microsoft slumps.
In overseas markets, the region-wide Stoxx 600 was up 0.15% in early Frankfurt trading, while the firmer pound held down gains for the FTSE 100, which was marked 0.34% lower in London.
Overnight in Asia, stocks rebounded from their lowest levels in more than two years, following on from last night’s solid close on Wall Street, with the region-wide MSCI ex-Japan index marked 1.2% higher heading into the close of trading. Japan’s Nikkei 225 gained 0.67%.
2. — Microsoft Slides On Muted Cloud, PC Outlook After Q1 Earnings Beat
Microsoft (MSFT) – Get Microsoft Corporation Report shares were marked firmly lower in pre-market trading after the tech giant posted weakening growth rates in its key cloud computing division for forecast disappointing revenue gains over the final months of the year.
Microsoft said revenues for Azure, its flagship cloud division, rose 35% from last year, slowing notably from its prior quarter gains as companies pulled back on investment spending. That rate will slow further, the company said, into the three months ending in December, Microsoft’s fiscal second quarter.
The group also forecast lower-than-expected revenues from its umbrella ‘intelligent cloud’ division, as well as its personal computing business.
For the three months ending in September, overall group revenues rose 10.5% to $50.1 billion, just ahead of Street forecasts, while its bottom fell 15% to $17.3 billion.
Microsoft shares were marked 5.6% lower in pre-market trading to indicate an opening bell price of $236.60 each.
3. — Google Slumps Amid Ad Sales Retreat, Q3 Earnings Miss
Alphabet (GOOGL) – Get Alphabet Inc. Report shares slumped lower in pre-market trading after the Google parent company posted weaker-than-expected third quarter earnings thanks to slowing ad sales growth that echoed the warning last week from messaging ap maker Snap (SNAP) – Get Snap Inc. Class A Report.
Google said revenues from YouTube, its signature non-search platform, fell 2% to around $7.07 billion over the three months ending in September, a move CFO Ruth Porat said reflects a “pullback in spend by some advertisers as we first noted last quarter”. Ad sales were up just 2.5% to $54.48 billion while overall revenues rose 6.1% — the slowest since 2013 — to $69.1 billion.
Google’s bottom line came in at $1.06 per share over the three months ending in September, compared to last year’s split-adjusted figure of $1.39 per share, a tally that missed Street forecasts by around $1.25 per share.
Alphabet shares were marked 6.15% lower in pre-market trading to indicate an opening bell price of $98.05 each.
4. — Boeing Earnings On Deck As Plane Deliveries Take Off
Boeing is expected to post a modest profit of 7 cents per share for the three months ending in September, with revenues rising 17% from last year to around $17.87 billion. Investors are likely to focus on the group’s operating cash flow, however, which turned positive last quarter — at just over $100 million — and was forecast to remain in the green for the rest of the year.
Improving plane orders could help drive both metrics, with Boeing adding another 90 bookings over the month of September amid a surge in aircraft demand powered by a global travel boom. Boeing delivered 51 planes last month — matching its highest total since the pandemic — taking the quarterly tally to 113.
Boeing shares, which have fallen nearly 29.5% so far this year, were marked 0.05% lower in pre-market trading to indicate an opening bell price of $146.60 each.
5. — Visa Shares Higher As Travel Boom Drives Q3 Spending Surge
Dow component Visa earned $1.993 per share over the three months ending in September, well ahead of the Street consensus forecast of $1.86, per share, as group revenues jumped 19% to a Street-beating $7.8 billion.
Cross border spending was up 36%, Visa said, with payments volume up 10% on a constant-currency basis.
Last week, American Express (AXP) – Get American Express Company Report posted better-than-expected third quarter earnings of $2.47 per share, with revenues rising 24% to $123.6 billion, but set aside nearly $800 million to cover risky loans and credit balances within its global network.
Visa shares were marked 1.35% higher in pre-market trading to indicate an opening bell price of $197.00 each.