Weak third-quarter results from Microsoft and Google parent Alphabet weighed on US markets on Wednesday, after the big tech giants warned of weakness in key business areas investors had hoped would weather an economic slowdown.
Alphabet fell 9.1 percent while Microsoft fell 7.7 percent. Both suffered their worst single-day declines since the coronavirus pandemic began in March 2020.
The weak reports dragged the tech-dominated Nasdaq Composite down 2 percent, while the broader S&P 500 fell 0.7 percent in choppy trading.
Ted Mortonson, Baird’s technology sector strategist, said almost every part of the technology industry has faced a difficult combination of stresses, including a stronger dollar, falling consumer demand, weakness in Europe and Asia, rising interest rates and geopolitical tensions, including US restrictions for the Chinese semiconductor industry.
“We have a mix of ingredients that we don’t have [previously] seen everyone together,” Mortonson said.
Alphabet’s results, released Tuesday night after the market close, showed a sharp slowdown in growth at its core search advertising business. Smaller rival Snap warned of advertising challenges last week, but many investors had hoped Google’s business would be less vulnerable to an economic downturn.
Facebook owner Meta fell 5.6 percent during regular trading on Wednesday, but its shares fell another 12 percent after the closing bell as they reported a decline in third-quarter revenue.
Microsoft, meanwhile, said it expected growth at its cloud computing business — which investors had been relying on to offset weakness in the PC market — to slow in the fourth quarter.
Elsewhere, US Treasury prices rallied on Wednesday as investors continued to scale back expectations of how far the US Federal Reserve will hike interest rates. Futures markets priced in a peak of 4.86 percent in May, up from 5 percent last Thursday.
A lower-than-expected Bank of Canada rate hike and comments from Governor Tiff Macklem that the central bank is nearing the end of its monetary tightening cycle contributed to views that policymakers may soon be winding down their aggressive fight against inflation.
The benchmark 10-year US Treasury yield, which falls as prices rise, fell 0.1 percentage point to 4.01 percent.
The dollar slipped 1.1 percent against a basket of six counterparts, bringing the US currency back to levels last seen in late September. The euro climbed above the $1 mark for the first time in a month.
Chris Turner, ING’s global head of markets, attributed the dollar’s recent moves less to “any kind of downgrade” in the US economy and more to investors looking for bargains elsewhere.
In Europe, the regional Stoxx Europe 600 index recouped earlier losses and rose 0.6 percent. The moves came as Deutsche Bank, the country’s largest lender, reported its highest pre-tax profit in the third quarter since before the financial crisis, thanks in part to rising interest rates.
The European Central Bank is due to meet on Thursday and is expected to raise borrowing costs by 0.75 percentage points to 1.5 percent for the second month in a bid to tame inflation, which hit 10 percent in the year to September.
Gergely Majoros, a member of Carmignac’s investment committee, said falling natural gas prices in Europe and hopes that the Fed and ECB could start slower rate hikes in the fourth quarter and into the new year meant investors were “short-term have gone down quite a bit.”
London’s FTSE 100 index rose 0.6 percent on Wednesday, while 10-year gilt yields slipped 0.06 percentage points to 3.57 percent.
Stocks in Asia rose after sharp declines for Chinese tech stocks in the previous session. Hong Kong’s Hang Seng closed 1 percent higher and Japan’s Topix rose 0.6 percent.
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