US open: Microsoft, Alphabet results hit markets ahead of Fed decision

Wall Street stocks were mostly lower on Wednesday with the Nasdaq in particular nursing heavy losses after negative reactions to results from tech heavyweights Microsoft and Alphabet.

Microsoft delivered a record fiscal second quarter, beating analysts' forecasts with both revenues and profits, driven by a 30% jump in sales for its Azure division. However, the market was firmly focusing on guidance for the third quarter, as the company pointed to revenues of $60-61bn, or $60.5bn at the mid-point, slightly under the current consensus estimate of $60.93bn.

Google owner Alphabet also overshot market estimates with its fiscal fourth quarter but shares dropped sharply with market chatter pointing to disappointing search revenues.

An hour into the trading day, Microsoft shares were down 1.2% while Alphabet dropped 7%, pushing the Nasdaq 1.4% lower. The Dow meanwhile was flat, holding on to its record closing high reached on Tuesday, while the S&P 500 fell 0.8%.

Fed and economic data in focus

Investors were also likely scaling back risk appetite following impressive gains over the year to date, with a Federal Reserve policy decision at 1400 ET prompting some extra nervousness. The Fed is widely expected to stand pat on interest rates, but the market will be on the lookout for more clarity on the outlook for rates since market expectations of a cut in March have been recently pushed back following resilient economic data.

In other macro news, private sector employment in the US rose less than expected in January, according to figures released on Wednesday by ADP. Employment increased by 107,000 from December, versus expectations for a 145,000 jump. Meanwhile, December’s gain was revised down to 158,000 from 164,000.

According to the Department of Labor, in seasonally adjusted terms, the Employment Cost Index increased at a quarter-on-quarter pace of 0.9% (consensus: 1.0%) over the three months ending in December. Covid distortions aside, that was the smallest increase since December 2019 and down from the 1.1% rise seen during the prior quarter.

The manufacturing downturn in the wider Chicago area unexpectedly worsened in January, according to a closely watched survey of purchasing managers released on Wednesday. The purchasing managers' index released by the Institute for Supply Management-Chicago, which tracks business conditions across Illinois, Indiana and Michigan, dropped to 46.0 this month, from a revised 47.2 in December, missing the 48.0 forecast.

Paramount jumps, Boeing tops forecasts

Shares in Paramount Global soared over 20% after it emerged Allen Media Group had submitted a multi-billion dollar bid for the US giant. In a statement sent to Reuters, the business – controlled by entrepreneur Bryon Allen – said it had submitted a $30bn debt and equity bid. It provided no further details. According to Bloomberg News, which first reported the potential bid, the offer values the mass media and entertainment firm at $14.3bn, or $30bn once debt is included.

Troubled aerospace giant Boeing topped market expectations on fourth quarter losses on Wednesday, but declined to offer guidance for 2024 as it grappled with safety issues with its 737 MAX-9 narrowbody. Shares rose 3.5% after the company reported a quarterly loss per share of 47 cents, much better than the expected 78 cents loss. Revenue also exceeded estimates, totalling $22.02bn, compared to the expected $21.1bn.