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Nasdaq underperforms on worries about tech earnings ahead

2023-04-24T20:03:54Z

The Nasdaq closed lower and underperformed the S&P 500 and the Dow on Monday, pressured by high-profile megacaps as investors awaited results from companies including Microsoft while Tesla shares fell on concerns about its spending plans.

Tesla Inc (TSLA.O) fell after the automaker raised its 2023 capital expenditure forecast to ramp up output, weighing down consumer discretionary stocks (.SPLRCD).

It was one of the biggest drags on the benchmark S&P 500, along with Microsoft Corp (MSFT.O), which was under pressure ahead of its results due out on Tuesday. Also on deck this week are reports from Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN.O) and Meta Platforms Inc (META.O).

A rally in these stocks has supported Wall Street this year, so investors are worried about whether the gains can continue given the gloomy economic outlook.

“People are a little tentative that the outperformance may not continue in earnings season, which thus far has been quite a bit better than expected. Granted the bar was low,” said Randy Frederick, managing director, trading and derivatives at Charles Schwab in Austin, Texas.

Frederick also pointed to anxiety about upcoming economic data such as first-quarter growth and inflation readings.

According to preliminary data, the S&P 500 (.SPX) gained 3.74 points, or 0.09%, to end at 4,137.13 points, while the Nasdaq Composite (.IXIC) lost 33.89 points, or 0.28%, to 12,038.56. The Dow Jones Industrial Average (.DJI) rose 69.40 points, or 0.21%, to 33,878.36.

Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, said the Philadelphia semiconductor index (.SOX) would likely underperform because of increasing global tensions with China.

U.S. stocks have largely held steady through the start of the earnings season on stronger-than-expected results from big banks, allaying concerns about a contagion from the regional banking crisis in March.

Of the 90 S&P 500 companies that have reported first-quarter results so far, nearly 77% have topped analysts’ estimates compared with the long-term average beat rate of 66%, as per Refinitiv IBES data.

Early readings of first-quarter U.S. GDP, personal consumer expenditure index (PCE) for March, and April consumer confidence are among the data scheduled for release this week.

Mixed data last week cemented bets of a 25-basis-point rate hike by the Federal Reserve in May, with money market traders pricing in a 92% chance of such a move, according to CME Group’s Fedwatch tool. Fed policymakers said in the past week that the central bank has more work to do to bring down inflation.

U.S. Treasury yields eased following recent signs of slowing inflation and economic activity, though investors appeared increasingly concerned about a government spending stand-off and the potential for the United States to hit its debt ceiling sooner than expected.

U.S. House of Representatives Speaker Kevin McCarthy said the House would vote on his spending and debt bill this week.

Also dragging on the S&P 500 was air conditioner maker Carrier Global Corp (CARR.N) after reports, citing unidentified sources, said the company was in advanced talks to acquire German industrial manufacturer Viessmann for more than $12 billion including debt.

In the penny-stock department, shares in once-popular home goods retailer Bed Bath & Beyond (BBBY.O) tumbled after it declared bankruptcy on Sunday. Retail rivals including Target Corp (TGT.N) and Walmart Inc (WMT.N) were gaining ground during Monday’s session.

First Republic Bank (FRC.N) shares rose ahead of the regional bank’s quarterly report. The stock has sunk 88% this year, triggered by the U.S. banking crisis.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 19, 2023. REUTERS/Brendan McDermid

A screen displays the logo and trading information for General Electric Company on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 19, 2023. REUTERS/Brendan McDermid
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