US pre-open: Futures mixed as Microsoft beats targets, Alphabet disappoints

Stock futures were pointing to a flat start on the Dow Jones Industrial Average but losses on the S&P 500 and Nasdaq after some mixed reactions to quarterly earnings from heavyweights Alphabet and Microsoft.

With economic data on the quiet side on Wednesday – ahead of key GDP and inflation figures later in the week – investors were firmly focusing on earnings.

Shares in Google parent Alphabet dropped after the closing bell after the company underwhelmed the market with its cloud-computing sales. Third-quarter revenues were up 11% at $77bn, but top-line growth in cloud slowed to a worse-than-expected 22%. Futures were down 6.6% by 0519 ET.

In contrast, Microsoft futures were rising strongly in pre-market trade after the company reported a 13% jump in revenues for its fiscal first quarter to $56.5bn, helped by strong demand for cloud computing services. The company also guided to $60.4-61.4bn in revenues for the second quarter, well ahead of the $58.7bn consensus estimate.

"Microsoft and Alphabet both delivered better than expected earnings although there was some divergence in the reaction, with the former higher and the latter lower on their respective numbers. Microsoft’s head start in AI seems to be paying off, while Alphabet appears to be in catch-up mode on both this and cloud computing," said AJ Bell's head of financial analysis Danni Hewson.

The Dow was up 0.1% in pre-market trade, while the S&P 500 and Nasdaq were down 0.4% at 0.6%, respectively.

After the closing bell, Federal Reserve chair Jerome Powell is scheduled to make a speech, which will be closely watched ahead of key economic data over the next few days.

Thursday will see the release of third-quarter GDP figures, with analysts expecting a pick-up in annual economic growth to 4.2% or 4.3%, from 2.1% in the second quarter.

"The Federal Reserve's objective is to achieve below-trend growth to curb inflation. However, a growth rate of 4.3% is considerably above trend and is not conducive to maintaining price stability. The current economic environment is characterized by excess demand and limited supply across various sectors. If the growth matches the estimates, it will mark the fastest expansion rate since Q4 of 2021," said Stephen Innes, managing partner at API Asset Management.

"While it may seem straightforward to argue against another rate hike given the strong personal consumption figures and robust job market, the nuances suggest a more complex picture. The longer lags in the current economic environment, the ongoing adjustment in labour supply, and various factors affecting inflation and wages all contribute to the decision-making process."

On Friday, the much-anticipated personal consumption expenditures index – the Fed's preferred measure of inflation – is forecast to show that core inflation slowed to an annual rate of 3.7% in September from 3.9% in August.