Stocks Slump as Microsoft’s Sales Warning Hammers Tech Stocks

Rich Asplund - Barchart - Wed Jan 25, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.43%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.91%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.32%.

U.S. stock index futures this morning ares sharply lower on a selloff in technology stocks after Microsoft warned about a slowdown in sales, raising concerns the economy is faltering. The slump in Microsoft also undercut other software and cloud-computing stocks such as Amazon.com, Adobe, and Alphabet.

Geopolitical concerns are also weighing on stocks today on fears that the decision by Germany and the U.S. to provide Ukraine with tanks might provoke an escalation in the Russia-Ukraine war.

Negative corporate news today is also weighing on stock indexes. Norfolk Southern and Automatic Data Processing are down more than -5% after reporting disappointing quarterly earnings. Also, Boeing is down more than -1% after reporting disappointing Q4 revenue, and Kimberly-Clark Q4 dropped more than -1% after reporting weaker-than-expected Q4 net sales.

Credit Suisse said it is too early to increase risks in stock portfolios and said markets are pricing in too much optimism regarding the path of inflation and central bank actions. Credit Suisse warns that corporate earnings are set to remain under pressure, with margins falling from record levels, as economic growth falters and higher interest rates raise financing costs and pricing power wanes.

European and U.S. government bond yields are lower today due to the slump in stocks and geopolitical risks in Ukraine. The 10-year T-note yield is down -1.3 bp at 3.440%. The 10-year German bund yield is down -3.8 bp at 2.116%, and the 10-year UK gilt yield fell to a 6-week low of 3.178%.

Overseas markets are mixed. The Euro Stoxx 50 index is down -0.56%, and Japan’s Nikkei Stock index closed up +0.35%. China and Hong Kong remain closed for the Lunar New Year holidays.

Today’s stock movers…

Microsoft (MSFT) is down more than -4% to lead losers in the Dow Jones Industrials after reporting Q2 revenue of $52.75 billion, below the consensus of $52.93 billion, and forecasting that Q3 sales in its Azure cloud-computing business will slow by 4 or 5 points from the end of Q2. Other cloud stocks sank on the Microsoft news, with Datadog (DDOG) down more than -9% to lead losers in the Nasdaq 100. Also, Amazon.com (AMZN) is down more than -4%, Alphabet (GOOGL) is down more than -3%, and Adobe (ADBE) is down more than -2%.

Nasdaq (NDAQ) is down more than -8% today to lead losers in the S&P 500 after forecasting 2023 operating expenses of $1.77 billion to $1.85 billion, the midpoint above the consensus of $1.78 billion.

Intuitive Surgical (ISRG) is down more than -6% after reporting Q4 revenue of $1.66 billion, below the consensus of $1.68 billion, and saying it won’t launch a new multiport robotic system in fiscal 2023, removing a positive catalyst for the stock.

Automatic Data Processing (ADP) is down more than -5% after reporting Q2 professional employer organization (PEO) services revenue of $1.50 billion, weaker than the consensus of $1.52 billion, and cutting its 2023 PEO services growth estimate to 8%-9% from a prior estimate of 10%-12%.

Norfolk Southern (NSC) is down more than -5% after reporting Q4 EPS of $3.42, below the consensus of $3.43.

Kimberly-Clark (KMB) is down more than -1% after reporting Q4 net sales of $4.96 billion, weaker than the consensus of $4.97 billion.

Boeing (BA) is down more than -1% after reporting Q4 revenue of $19.98 billion, weaker than the consensus of $20.01 billion.

News Corp (NWSA) is up more than +8% to lead gainers in the S&P 500 after Rupert Murdoch said he was abandoning plans to explore a recombination of Fox Corp and News Corp, two media companies he controls.

AT&T (T) is up more than +6% after reporting Q1 adjusted EPS of 61 cents, above the consensus of 56 cents.

U.S. Bancorp (USB) is up more than +4% after reporting Q4 net interest margin of 3.01%, better than the consensus of 2.94%.

Progressive Corp (PGR) is up more than +3% after reporting Q4 net premiums earned of $12.89 billion, above the consensus of $12.82 billion, and Q4 net premiums written of $12.46 billion, stronger than the consensus of $12.37 billion.

Across the markets…

March 10-year T-notes (ZNH23) today are up +9 ticks, and the 10-year T-note yield is down -1.3 bp at 3.440%. A slump in stocks today has sparked some safe-haven buying of T-notes. Also, geopolitical risks in Europe have sparked a rally in European government bonds today that is underpinning T-note prices on concern the war in Ukraine may escalate after Germany agreed to supply Ukraine with battle tanks. However, gains in T-notes are limited by supply pressures as the Treasury will auction $43 billion of 5-year T-notes late today as part of this week’s $120 billion auction package of T-notes.

The dollar index (DXY00) today is up by +0.02%. The dollar today is slightly higher as a selloff in stocks boosts liquidity demand for the dollar. Geopolitical risks in Europe are also boosting safe-haven demand for the dollar. However, lower T-note yields today are limiting the upside in the dollar.

EUR/USD (^EURUSD) today is down by -0.02%. The euro today is slightly lower on concerns the action by Germany to supply Ukraine with over 100 Leopard battle tanks will spark an escalation of the Russia-Ukraine conflict. Losses in EUR/USD were limited by hawkish comments from ECB Governing Council member Makhlouf and by today’s news that the Jan German Ifo gauge of business confidence rose to an 8-month high.

ECB Governing Council member Makhlouf said, "inflation remains far too high, and interest rates will have to rise significantly at a steady pace to reach levels sufficiently restrictive to ensure a timely return of inflation to the ECB's 2% medium-term target."

The German Jan Ifo business expectations index rose +3.2 to an 8-month high of 86.4, stronger than expectations of 85.3.

USD/JPY (^USDJPY) today is down by -0.35%. The yen today is moderately higher. A decline in T-note yields today is supportive of the yen. Also, a jump in the 10-year Japan JGB bond yield today to a 1-week high of 0.447% has strengthened the yen’s interest rate differentials and is bullish for the yen.

Today’s Japanese economic news was bearish for the yen after the Nov leading index CI was revised down by -0.2 points to a 2-year low of 97.4 from the initially reported 97.6.

February gold (GCG3) this morning is down -4.8 (-0.25%), and March silver (SIH23) is down -0.044 (-0.19%). Precious metals prices this morning are slightly lower due to a stronger dollar. Also, hawkish ECB comments today weighed on gold after ECB Governing Council member Makhlouf said, "inflation remains far too high, and interest rates will have to rise significantly.” Losses in precious metals are limited by lower U.S. and European government bond yields. Also, Germany’s decision to supply Ukraine with battle tanks sparked some safe-haven demand for precious metals.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.