Stocks continued to decline on one of the busiest days of the earnings season. Investors reacted to disappointing results from Microsoft Corp. and Meta Platforms Inc., along with economic data that complicated expectations for interest rate cuts by the Federal Reserve.
U.S. equity futures fell after a quiet session on Wall Street. Nasdaq 100 contracts dropped more than 1%, with Microsoft and Meta each down about 4% in pre-market trading. These two stocks alone accounted for half of the losses in Nasdaq futures, according to Bloomberg. Amazon Inc. and Apple Inc. are set to report their earnings later today.
Market Reaction to Disappointing Results
Marija Veitmane, a senior multi-asset strategist at State Street Global Markets, stated that the disappointing earnings from Microsoft and Meta negatively impacted market sentiment. She noted, “The market is concerned about the rising investments, which are likely to weigh on stocks in the short term.”
However, she added that “in the medium term, we see weakness in tech stocks as a buying opportunity. It’s a very crowded position, so it gets sold off on any sign of disappointment. Still, we see investors returning since there are few alternatives for quality investments.”
Dollar Steady Amid Economic Data
The dollar remained steady and was on track for its best month in over two years. This came after investors reduced their expectations for a loosening of Fed policy, following strong economic growth and job data released on Wednesday. Implied volatility on the Bloomberg Dollar Spot Index surged to its highest level since December 2022, signaling that traders anticipate significant fluctuations in the dollar ahead of the U.S. presidential election.
Michael Brown, a senior research strategist at Pepperstone Group Ltd., commented on the situation, stating, “Yesterday’s U.S. GDP data highlighted the theme of ‘U.S. exceptionalism’ that supports the dollar’s recent strength. In this environment, it’s difficult to bet against the greenback. I would be looking to buy any dips in the dollar before the election.”
Treasury Yields Rise as Inflation Concerns Grow
The two-year Treasury yield, which is sensitive to interest rate changes, rose to a three-month high. Investors are increasingly concerned that a resurgence in inflation following the U.S. election could delay or prevent interest rate cuts.
Daniel Yoo, head of asset allocation at Yuanta Securities, shared his insights on Bloomberg Television, saying, “The outcome of the presidential election will change the perspective on the investment cycle. Higher tariffs and lower corporate taxes under a potential Donald Trump presidency could increase inflation pressure. This may slow the pace of interest rate cuts, or they may not happen at all.”
Related topics:
