Multiple factors are pushing stocks down today as stocks battle difficult market conditions. So far, the week’s top earnings story is Microsoft (NASDAQ:MSFT) which reported Q3 earnings for 2022 last night. The tech giant reported some positive statistics that sent shares up 4% in after-hours trading. However, as Yahoo Finance reports, the report’s dominant theme is caution, now optimism for growth in the coming year. MSFT stock is falling today as markets adjust to this news and it is taking many other stocks with it.
Meanwhile, the Federal Open Markets Committee (FOMC) is preparing for its first meeting of the year on Feb. 1. These meetings tend to generate uncertainty as investors prepare for market-shaking rate hikes. While evidence suggests that inflation is cooling, it likely will not be enough to compel the Federal Reserve to pause rate hikes. Until the meeting is concluded, investors will be bracing for impact.
Let’s take a closer look at what’s pushing markets down today and what investors can expect.
As noted, MSFT stock is falling, generating enough negative momentum to push many other stocks down today. The company showed some encouraging growth, primarily from its cloud-computing platform Azure. But while it recently extended its partnership with ChatGPT maker OpenAI, Microsoft also recently laid off 5% of its workforce, which translates to roughly 10,000 staff members. As Yahoo Finance notes, a downbeat tone and an emphasis on caution dominated the earnings call.
It’s worth noting that Microsoft isn’t the only company that recently issued a downbeat earnings report. Texas Instruments Incorporated (NASDAQ:TXN) also beat earnings estimates but highlighted that demand may fall in the coming months. The combination of these two downbeat forecasts that both stress caution doesn’t inspire much confidence as the tech sector prepares to report earnings. And Wall Street is already souring on MSFT. As analyst Brent Thill of Jefferies stated in a client note:
“We are lowering our FY23 growth from 7.1% to 4.8% year over year (10%+ year over year constant currency guidance rescinded) as macroeconomy continues to weigh on results with tough comparables and lowest commercial bookings growth in five years.”
With problems on the horizon for the tech sector, it’s not a great time for inflation fears to be on the rising. But that’s exactly what’s happening as the FOMC prepares to meet next week. It’s entirely possible that the Federal Reserve will implement smaller rate hikes while inflationary trends continue to cool. But that doesn’t mean we’ll see the rate-hike pause that would boost stocks. As Bloomberg reports, “inflation remains well above their 2% goal and a still-tight labor market risks keeping it elevated.” And even a smaller percentage rate hike will inevitably lead to further volatility as markets adjust.
A recent statement from Federal Reserve Governor Lael Brainard also strongly suggests that U.S. markets won’t see a rate hike pause. Last week, she noted that: “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis.”
This is likely to remain a volatile week for markets as the FOMC meeting looms. Microsoft and its peers will ultimately shake off the negative energy pushing stocks down today. But even a smaller rate hike will generate further turbulence, making it difficult for markets as a whole to fully rebound.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.
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