U.S. stocks slumped Wednesday after weak earnings from Alphabet (GOOGL) and Microsoft (MSFT) raised concerns that slowing output could dent corporate profits in the coming months.
The technology-heavy Nasdaq Composite (^IXIC) was down 2%, while the S&P 500 (^GSPC) pushed lower by 0.7%, breaking three-day winning streaks for the indices. The Dow Jones Industrial Average (^DJI) ticked higher by 0.01% after seesawing throughout the day.
Stocks had rallied of late, posting three straight days of gains before Wednesday's selloff. After the closing bell on Tuesday, however, Microsoft posted its weakest quarterly revenue growth in five years as a strong dollar and slumping PC sales held back the tech giant’s growth. Microsoft shares closed down 7.7%, while intraday action saw the biggest drop since March 2020.
Google parent Alphabet, meanwhile, posted results that missed analysts’ revenue expectations, while YouTube recorded its first decline in digital ad revenue since the company began reporting the video unit’s performance. The company's shares closed down more than 9%, its worst one-day loss since 2020.
“The fact of the matter is, we are heading into, whether we want to call it a recession or not, we're heading into a softer or tighter macro environment. … You hear this from all the software vendors,” RBC Capital Markets software equity analyst Rishi Jaluria told Yahoo Finance Live on Tuesday following the quarterly earnings reports.
“It was disappointing,” Morningstar senior equity analyst Ali Mogharabi told Yahoo Finance Live on Tuesday. The decline in Youtube’s digital ad revenue was due in part to the “foreign currency headwinds,” but the broader picture here is the economic downturn, he explained.
“A lot of advertisers are becoming more hesitant. They're maybe holding back a little bit on their ad spending. But at the same time, even during an economic downturn, you're seeing the importance of that digital transition of that cloud migration,” Mogharabi said.
After Wednesday's closing bell, Facebook parent Meta Platforms (META) also reported earnings that missed expectations, sending shares nosediving after hours.
The downturn rippled across the tech sector. Meta Platforms fell 5.6% before its earnings miss, while Amazon (AMZN) dropped 4.1%.
“We are effectively going into a recession,” @Jefferies’ Brent Thill says. “It is going to get harder as we go into ’23. The fact that companies like Microsoft and Google are all seeing it is just an indication of what’s to come.” pic.twitter.com/yjdW7VPlft
— Yahoo Finance (@YahooFinance) October 26, 2022
While tech shares have been downbeat this year, mega-cap technology stocks still hold heavyweight over the major indexes. The five biggest tech firms — Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (FB), Apple (AAPL), and Amazon (AMZN) — alone represent roughly a quarter of the S&P 500 index's market capitalization.
Elsewhere in earnings on Wednesday, the automaker Ford (F) reported earnings that beat on the top line. Shares fell after hours, however, as Ford affirmed the bottom end of its full-year profit forecast.
The market also digested earnings from Chipotle (CMG), which posted results Tuesday that slightly topped market expectations. Most of its sales numbers came from another round of menu price increases as the company navigates inflationary pressures. Spotify (SPOT), meanwhile, added more users on both its free and paid tiers than expected in the third quarter. The streaming company reported a 19% ad-revenue increase but said sales weakened due to the “challenging macro environment.” Spotify sank 13% on the day.
Finally, Boeing on Wednesday became the latest company to report a third-quarter loss and revenue that missed analysts' expectations amid a “challenging environment.”
Also on Wall Street’s plate was Twitter’s drama-filled acquisition deal. Elon Musk has until Friday evening to close the deal on his $44 billion acquisition or face a legal battle at Delaware Chancery Court next month. Musk posted video of himself in Twitter headquarters Wednesday.
"Once Twitter deal closes on Friday (which is our expectation) and Musk sells his needed Tesla stock this 6 month painful overhang will be over and Tesla investors can finally focus on moving forward and seeing the next chapter of growth story take hold into 23 despite macro," Wedbush Securities analyst Dan Ives wrote on Twitter following the news on the deal.
In the crypto market, Bitcoin (BTC) climbed above $20,000 for the first time in about three weeks as trade volume moves downward for the quarter.
Cryptocurrency trading volume has steadily declined all quarter pic.twitter.com/B8ZrpHp1RA
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) October 18, 2022
Yields on the U.S. Treasury bonds were lower Wednesday, as the dollar weakened, marking its lowest level in three weeks. As stocks have rebounded over the past week, bonds have continued to fall, marking a potential disconnect between a steady market trend this year.
North of the U.S., the Bank of Canada raised it benchmark rate by by a half-percentage point from 3.25% to 3.75%, the highest level in nearly 14 years. Economists surveyed had expected a larger 75-basis point increase.
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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