Dow ekes out gain, but Nasdaq and S&P 500 end lower after Microsoft's disappointing outlook fuels recession fears
By Isabel Wang and Frances Yue
Tesla, IBM will report results after the closing bell
The Dow eked out a gain Wednesday, but the S&P 500 and Nasdaq closed lower after disappointing earnings guidance from Microsoft Corp. added to concerns about corporate profits and a slowing economy.
How stocks traded
On Tuesday, the Dow Jones Industrial Average rose 0.3%,the S&P 500 declined 0.1%, and the Nasdaq Composite dropped 0.3%.
What drove markets
U.S. stock indexes closed modestly lower Wednesday, except for the Dow, which closed fractionally higher, as investors weighed fourth quarter corporate earnings reports from technology behemoths and awaited next week's Federal Reserve interest-rate decision.
Microsoft (MSFT) shares shed 0.6% on Wednesday after tumbling as much as 5% earlier in the session in the wake of delivering mostly better-than-expected earnings figures. But the company's chief financial office Amy Hood also warned of softening demand for its cloud services amid an economic slowdown.
Hood said in a conference call late Tuesday that the company expects the downward business trends witnessed at the end of 2022 to continue into the current quarter, while projecting revenue to come in roughly $1 billion or more lower than Wall Street expects.
The company's guidance is "what has been expected in an environment where consumers face higher costs on a large array of products," said Kevin Philip, partner at Bel Air Investment Advisors. "With the high level of uncertainty, they're reining in discretionary income, and they don't have as much cushion as the stimulus measures that were enacted during the COVID era."
Microsoft's March-quarter earnings guidance also raised questions about the rally to kick off 2023.
"U.S. stocks are declining after a couple of major tech warnings are making traders nervous of a macro slowdown," Edward Moya, senior market analyst at Oanda wrote. "Tech earnings from Microsoft to
Opinion: Microsoft gave Wall Street hope, but then the cloud forecast turned dark
Quincy Krosby, Chief Global Strategist for LPL Financial, said the stock market's harsh reaction means the guidance is becoming "even more important than it was before Microsoft earnings call."
"It has been said so many times that corporate guidance during this fourth quarter earnings season is crucial for understanding the direction of the market, especially amid a backdrop of weakening economic data."
The tech-rich Nasdaq Composite Index is up 8.1% for the year to date as investors made bets some of the big names had been sold down too much in the wake of the 2022 bear market.
So far, more than 19% of the S&P 500 companies have reported fourth-quarter earnings, and 68% of them posted stronger-than-expected results, according to FactSet.
Companies stepping up to the plate on Wednesday after the closing bell include: Tesla (TSLA), AT&T (T), IBM (IBM), ServiceNow (NOW), Lam Research (LRCX), CSX (CSX), Abbott (ABT), Wynn (WYNN), and Nasdaq (NDAQ).
See:U.S. economy ended 2022 on solid footing, GDP to show. But a recession might loom
Companies in focus
--Jamie Chisholm contributed to this article.
(END) Dow Jones
January 25, 2023 16:50 ET (21:50 GMT)
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