NEW YORK: The S&P 500 and the Nasdaq edged lower on Wednesday as investors assessed mixed earnings from Microsoft and Alphabet ahead of a Federal Reserve rate hike that could push borrowing costs to their highest since the global financial crisis.
Microsoft eased 4.0% after laying out an aggressive spending plan to meet demand for its new artificial intelligence (AI)-powered services. The Windows maker still surpassed estimates for quarterly revenue and profit.
On the other hand, Alphabet gained 6.1% after the Google parent’s second-quarter profit exceeded Wall Street expectations on steady demand for its cloud services and a rebound in advertising.
The NYSE FANG+ index, which houses many megacap growth names, dropped 1.1%. The index has rallied 74.6% so far this year on optimism over AI and hopes that the Fed is nearing the end of its rate hiking cycle.
“After extreme gains so far this year in big tech stocks, we have now moved to a phase where each company’s stock price is very non-correlated to one another,” said David Bahnsen, chief investment officer of the Bahnsen Group.
“This is indicative of the selectivity we are seeing in big tech after such a stock price surge so far this year.” Meta Platforms rose 0.4% after Alibaba’s cloud unit said it would support the Facebook owner’s open-source AI model, Llama. Meta is also expected to report quarterly results after the bell.
The Fed is likely to deliver a 25-basis point interest rate hike later in the day, though there is less clarity over what the central bank will do at its subsequent meetings.
“The only thing that could change the Fed’s tone is if corporate earnings are coming down in the consumer related sectors,” said Melissa Brown, managing director of Applied Research at Qontigo.
“If we’re really worried about inflation you want to see what’s the impact on the consumer and are they still buying.”
As of Wednesday, 77.6% of the 152 companies listed on the S&P 500 that have reported earnings have beaten analyst expectations, as per Refinitiv Data.
At 11:42 a.m. ET, the Dow Jones Industrial Average was up 32.31 points, or 0.09%, at 35,470.38, the S&P 500 was down 7.27 points, or 0.16%, at 4,560.19, and the Nasdaq Composite was down 51.25 points, or 0.36%, at 14,093.30.