Wall Street plunges on worries about corporate profits

Tokyo – Wall Street weakened on Wednesday as concerns over corporate profits followed a string of earnings reports and mixed forecasts Microsoft and others.

The S&P 500 fell 1.4% in early trade, on track for a second drop after hitting a seven-week high on Monday. The Dow Jones Industrial Average was down 314 points, or 0.9%, at 33,423 as of 9:55 a.m. ET, while the Nasdaq Composite was down 2.1%.

Microsoft led the decline with a 4.4% decline after reporting weaker-than-expected revenue growth for the final three months of 2022. Perhaps more importantly, its forecast for upcoming results fell short of some analysts’ expectations. They singled out expectations for slower growth in their Azure cloud business.

Microsoft is one of the major stocks on Wall Street because it is one of the largest stocks, which gives its stock movement a bigger impact on the S&P 500 than other stocks. More than that, analysts say, because of how many businesses use its software and services, Microsoft provides one of the best windows into the strength of business spending.

Concerns are growing that corporate profits will generally shrink as costs continue to rise amid a slowing economy and high inflation. Analysts predict that in the coming weeks, S&P 500 companies will report their first decline in quarterly earnings per share since the 2020 pandemic hammered the economy.

Intuitive Surgical fell 6.9 percent and Nasdaq Inc., the company behind the Nasdaq stock market, fell 7.1 percent, the two biggest decliners on the S&P 500 after both reported quarterly results that missed analysts’ expectations. .

The winner was AT&T , which rose 5.1 percent after reporting stronger-than-expected profit.

The level of cash and profits a company generates is one of the main levers that determine stock prices on Wall Street.Another big one depends mostly on interest rates, and There is still a wide disconnect What investors and the Fed think will happen later this year.

Almost all expect the Fed to raise its key overnight interest rate by a quarter of a percentage point on Feb. 1. That would be another drop in the Fed’s pace of rate hikes, down from 0.50 percentage points last month and four consecutive hikes of 0.75 percentage points earlier. Inflation has slowed since its summer peak, adding to concerns that the Fed’s cuts to the economy Hope for extra pressure.

Expecting inflation to continue to cool, many investors are betting the Fed will actually start cutting rates by the end of the year. Meanwhile, the Fed has been adamant it won’t, and wants to keep interest rates high to ensure that high inflation is actually eliminated.

Higher interest rates hurt the economy by making borrowing more expensive for businesses and households. They also hurt the prices of stocks and other investments.

The yield on the 10-year U.S. Treasury note, which helps set interest rates on mortgages and other loans that weigh on the economy, fell to 3.44% from 3.46% late Tuesday. The two-year yield, which is more influenced by Fed expectations, fell to 4.12% from 4.21%.

Overseas, Mumbai’s Sensex fell 1.2% after a prominent short-selling firm, Hindenburg Research, accused Adani Conglomerates of stock manipulation and accounting fraud. Adani, founded by one of the world’s richest men, said the group’s chief financial officer called the report “a malicious combination of selective misinformation and stale, baseless and uncredible allegations that have been cleared by India’s Supreme Court.” Examined and rejected.”

Elsewhere, European stocks were slightly lower. Stocks in Japan and South Korea rose, while markets in China were closed for a holiday.

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AP Business Writers Yuri Kageyama and Matt Ott contributed.

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