ASX set for flat start as it eyes record; Microsoft, Alphabet disappoint Wall Street

By Stan Choe
Updated

Wall Street stocks drifted through a quiet day and held near their record heights following a mixed set of profit reports.

The S&P 500 slipped 0.1 per cent from its record. The Dow rose 0.3 per cent, and the Nasdaq composite fell 0.8 per cent. The Australian sharemarket is set to inch up, with futures at 7.59am AEDT pointing to a gain of 1 point at the open. The ASX added 0.3 per cent on Tuesday to edge closer to a record high.

Wall Street was mixed on Tuesday.
Wall Street was mixed on Tuesday. Credit: Bloomberg

On Wall Street, Alphabet reported fourth-quarter revenue from its core search advertising business that fell short of analysts’ estimates, overshadowing an otherwise strong end to the year. Microsoft’s cloud growth disappointed some on Wall Street — even as the company posted its strongest revenue growth since 2022, spurred by interest in new artificial intelligence products. Both shares were down more than 4 per cent in after-hours trading.

They, along with five other Big Tech stocks, have also accounted for the majority of the S&P 500’s torrid rally since hitting a bottom two Octobers ago. Three more of the “Magnificent Seven” big tech stocks will report their results on Thursday (US time): Apple, Amazon and Meta Platforms.

UPS slumped 8.2 per cent even though it reported stronger profit for the latest quarter than analysts expected. Its revenue fell short of Wall Street’s estimates, and it also gave a forecast for full-year revenue in 2024 that was weaker than expected.

Whirlpool sank 6.6 per cent despite likewise reporting a better profit than expected. Its forecast for 2024 revenue of $US16.9 billion ($25.6 billion) was roughly $US1 billion below analysts’ estimates.

Helping to offset those losses was General Motors. The automaker jumped 7.8 per cent after reporting stronger profit and revenue than expected.

Treasury yields were also mixed in the bond market following reports that showed the economy remains stronger than expected. One said confidence among consumers is climbing, while another suggested the job market may be warmer than forecast.

Advertisement

US employers advertised 9 million job openings at the end of December, which was a touch more than economists expected and slightly above November’s level. Traders were expecting the data to show a cooldown in the number of openings.

A drawdown would have fit more neatly into the trend that’s carried Wall Street to a record: a slowdown in the economy’s growth strong enough to keep a lid on inflation but not so much that it will create a recession.

Microsoft and Alphabet shares were down in after-hours trading.
Microsoft and Alphabet shares were down in after-hours trading. Credit: Bloomberg, AP

Hopes for a continued such trend are what have Wall Street foaming about the possibility of several cuts to interest rates by the Federal Reserve this year. Cuts would mark a sharp turnaround from the Fed’s dramatic hikes to rates over the last two years, and the reductions would give a boost to the economy and investment prices.

The Federal Reserve began its latest policy meeting on interest rates Tuesday, but virtually no one expects it to cut rates this soon. That won’t stop economists and traders from parsing every word coming out of the Fed Wednesday after its meeting finishes. They’ll be searching for clues that a rate cut may arrive at its next meeting in March.

“We think markets are overly optimistic that we’ll see a Fed interest rate cut in March,” said Joe Davis, chief economist at Vanguard. “It likely will be midyear before policymakers are confident that they have reined in inflation sufficiently to start cutting their target for short-term interest rates.”

The two-year Treasury yield, which moves closely with expectations for the Fed’s action, rose to 4.36 per cent from 4.32 per cent late Monday. It moved decisively higher following the release of the economic reports.

The yield on the 10-year Treasury, which is the centrepiece of the bond market, fell to 4.04 per cent from 4.09 per cent late Monday.

Companies that have reported better profits than expected so far this reporting have not been getting as big a pop as usual, analysts say.

JetBlue Airways sank 4.7 per cent despite reporting a milder loss for the last three months of 2023 than analysts expected. It said it expects revenue to be roughly flat in 2024, while its cost pressures outside of fuel will likely rise.

In stock markets abroad, Chinese indexes slumped to tack more losses onto their already tough start to the year.

Shares in property developer China Evergrande Group, the world’s most heavily indebted real estate company, remained suspended from trading after a Hong Kong court ordered the liquidation of the company.

Other property companies led the decline in Hong Kong, where the Hang Seng index sank 2.3 per cent. Stocks in Shanghai gave up 1.8 per cent.

Chinese regulators have been moving to prop up the markets amid worries about the troubled property industry and disappointing growth in the world’s second-largest economy.

Stocks were mixed elsewhere in Asia and rising modestly in Europe.

AP

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.

Most Viewed in Business

Source: Thanks smh.com