Big tech stocks lost $170 billion after Microsoft posted earnings declines.


Top line

Shares fell on Wednesday after Microsoft’s quarterly earnings report fell short of expectations, with high-tech stocks leading lower on growing concerns about how macroeconomic conditions will affect the financial health of corporations.

Key facts

Microsoft fell 4% in early trading, dragging peers like all five stocks in the FAANG group – Facebook parent Meta (-0.2%), Amazon (-2.9%), Apple (-1.8%), Netflix (-0.4%) and Google parent Alphabet (- 1.6%) – and Tesla (-1.9%) were all in the red.

Those seven companies lost $171.7 billion in market capitalization as of 9:40 a.m. EST, led by Microsoft’s $72 billion dip.

Stocks fell broadly amid Microsoft-fueled earnings concerns, with the Dow Jones industrial average down 0.6%, to 210 points, the S&P 500 down 1.1% and the tech-heavy Nasdaq down 1.6%.

The coming days will be critical for these typically high-growth stocks and the market as a whole, with Tesla reporting earnings after Wednesday’s call and Meta, Amazon, Apple and Alphabet each reporting next week.

This earnings season should address how companies can weather the looming recession, with Wedbush’s Dan Ives saying the main question heading into the season is “How bad is it?” That’s what it says. In a Monday note, Morgan Stanley’s chief investment officer Michael Wilson’s mind was already made up, saying in a Sunday note that the model was “plausibly” and “an earnings decline is imminent.”

Key background

Morgan Stanley predicts the S&P will drop 25 percent to a two-year low of 3,000 in the first few months of 2023. Long a bastion of growth, the biggest tech stocks have underperformed the market in 2022, with all three indexes suffering their worst annual performance since 2008. Tesla, Meta, Amazon, Apple, Microsoft, Netflix, Alphabet have each fallen 27% or more in the past year. And the Meta and Tesla’s 68% and 64% declines were among the 10 biggest drops on the S&P. Microsoft, which reported its slowest quarterly revenue growth in six years but saw strong growth Wednesday in its critical cloud business, now faces a “bulls-bears tussle” among investors, Ives said.

Tangent

The West Coast Titans are leading the charge the other way: layoffs. Microsoft said earlier this month it would cut 10,000 jobs, joining Amazon (18,000), Alphabet (12,000) and Meta (11,000), significantly reducing their headcount in recent weeks.

Further reading

Morgan Stanley warns ‘imminent’ earnings decline will pile up stocks—but here’s when the bear market will end (Forbes)



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