The rout continued after the closing bell after disappointing results from Alphabet and Microsoft.
US stocks fell to a six-week low as doubts emerged over the ability of corporate earnings to withstand the Federal Reserve intensifying its battle to rein in runaway inflation.
The rout continued after the cash market closed, with results from Alphabet Inc., Texas Instruments Inc. and Microsoft Corp. having been disappointing. The largest ETF that tracks the Nasdaq 100 fell another 1% after the tech-heavy index plunged nearly 4% to an 11-month low. Alphabet lost 5.8% and Microsoft fell 1.2% at 4:10 p.m. in New York.
The S&P 500 fell 2.8% in regular trading as General Electric Co. slid after its earnings forecast was disappointed and Tesla Inc. plunged after Elon Musk agreed to use his fortune to buy Twitter Inc. Treasuries, the dollar and oil prices all rose, while Europe gas jumped on reports of a flow stoppage.
The prospect of slower economic expansion coupled with persistent inflation is leading to a feverish mood in the markets. The panoply of risks covers the pandemic, supply chain disruptions, Fed tightening and Russia’s bitter war in Ukraine. The search for portfolio cushions in the United States is evident in the highest relative cost of loss protection sales contracts in two years.
“There is no doubt that economic growth is in trouble and the runway for central banks to manage a soft landing is narrowing as wages and inflation rise,” said Lauren Goodwin, economist and strategist at portfolio at New York Life Investments. “The big question for asset allocation is not whether inflation will be high. It is a given. Instead, it is whether growth can keep up.
US corporate earnings provide some comfort to stock bulls – nearly 80% of companies beat earnings expectations, including GE, United Parcel Service Inc. and Pepsico Inc. However, disappointing forecasts, including those of JetBlue Airways Corp. weigh on shares. Results from Microsoft Corp., Alphabet Inc., Google’s parent company, and Visa Inc. are yet to come.
Boost from China
Equities in Europe trailed those in the United States lower, erasing gains earlier in the session on positive corporate results and renewed sentiment of China’s commitment to supporting its Covid-hit economy.
Most of Beijing is being tested for the virus, stoking fears of an unprecedented lockdown that could dampen global growth. However, Dennis DeBusschere, founder of 22V Research, said worries about inflationary pressures may be overblown.
“There are no compounded supply chain pressures from other major supply chain countries like in 2021,” he said. “Consumer demand is generally weaker, spending on services is picking up (moderating spending on goods) and the USD is rising.”
An Asia-Pacific stock index climbed for the first time in four sessions amid a 3% jump in technology stocks in Hong Kong. Stocks in mainland China plunged but avoided the kind of plunge seen on Monday. The yen pushed higher amid short coverage.
Events to watch this week:
- Technology revenue includes Alphabet, Meta Platforms, Amazon, Apple
- EIA Petroleum Inventory Report, Wednesday
- CPI Australia, Wednesday
- Bank of Japan monetary policy decision, Thursday
- US 1Q GDP, weekly jobless claims, Thursday
- The ECB publishes its economic bulletin on Thursday
Some of the major movements in the markets:
- The S&P 500 fell 2.8% at 4:01 p.m. PT
- The Nasdaq 100 fell 3.9%
- The Dow Jones Industrial Average fell 2.4%
- The MSCI World index fell 2.1%
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.7% to $1.0642
- The British pound fell 1.2% to $1.2585
- The Japanese yen rose 0.5% to 127.45 per dollar
- The yield on 10-year Treasury bills fell seven basis points to 2.75%
- Germany’s 10-year yield fell two basis points to 0.81%
- The UK 10-year yield fell four basis points to 1.80%
- West Texas Intermediate crude rose 3.7% to $102.20 a barrel
- Gold futures rose 0.3% to $1,902.30 an ounce
–With assistance from Cecile Gutscher, Robert Brand and Joanna Ossinger.