Market Analysis

Beyond the Numbers

Positive Reaction To Microsoft, Alphabet Earnings May Lead To Rebound On Wall Street
7/27/2022 8:56 AM

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to regain ground following the sell-off seen in the previous session.

Strong gains by Microsoft (MSFT) and Google parent Alphabet (GOOGL) are likely to contribute to an early rebound on Wall Street.

Shares of Microsoft are up by 3.4 percent in pre-market trading after the software giant reported weaker than expected fiscal fourth quarter results but provided upbeat guidance.

Alphabet is also jumping by 3.7 percent in pre-market trading after reporting second quarter results that missed analyst estimates but were not as bad as some investors had feared.

Early trading activity may be somewhat subdued, however, as traders look ahead to the Federal Reserve’s monetary policy announcement this afternoon.

With the Fed widely expected to raise interest rates by another 75 basis points, traders are likely to keep a close eye on the accompanying statement and Fed Chair Jerome Powell’s post-meeting press conference for clues about the outlook for future rate hikes.

Following the mixed performance seen during Monday's session, stocks moved sharply lower over the course of the trading day on Tuesday. The major averages all showed notable moves to the downside, with the tech-heavy Nasdaq showing a particularly steep drop.

The major averages climbed off their worst levels going into the close but remained firmly negative. While the Nasdaq tumbled 220.09 points or 1.9 percent to 11,562.57, the S&P 500 slumped 45.79 points or 1.2 percent to 3,921.05 and the Dow slid 228.50 points or 0.7 percent to 31,761.54.

A steep drop by shares of Walmart (WMT) weighed on the markets, with the retail giant plunging by 7.6 percent to its lowest closing level in almost a month.

Walmart came under pressure after lowering its guidance for the second quarter and full year primarily due to pricing actions aimed to improve inventory levels.

Auto giant General Motors (GM) also moved to the downside after reporting second quarter earnings that missed analyst estimates.

Meanwhile, a strong gain by 3M (MMM) limited the downside for the Dow, with the conglomerate jumping by 4.9 percent after reporting better than expected second quarter results and announcing plans to spin off its health care business.

Shares of General Electric (GE) also surged after the conglomerate reported second quarter results that exceeded expectations on both the top and bottom lines.

The weakness on Wall Street also came as traders looked ahead to the Federal Reserve's monetary policy announcement.

In U.S. economic news, the Commerce Department released a report showing new home sales pullback by more than expected in the month of June.

The report said new home sales plunged by 8.1 percent to an annual rate of 590,000 in June after jumping by 6.3 percent to a revised rate of 642,000 in May.

Economists had expected new home sales to tumble by 5.2 percent to an annual rate of 660,000 from the 696,000 originally reported for the previous month.

With the bigger than expected decrease, new home sales slumped to their lowest annual rate since hitting 582,000 in April 2020.

A separate report released by the Conference Board showed consumer confidence in the U.S. deteriorated by more than expected in the month of July.

The Conference Board said its consumer confidence index slid to 95.7 in July from a downwardly revised 98.4 in June. Economists had expected the index to drop to 96.8 from the 98.7 originally reported for the previous month.

Retail stocks moved sharply lower following the warning from Walmart, dragging the Dow Jones U.S. Retail Index down by 4 percent.

The index continued to give back ground after ending last Thursday's trading at its best closing level in well over two months.

Significant weakness was also visible among airline stocks, as reflected by the 2.7 percent nosedive by the NYSE Arca Airline Index.

Financial stocks also showed notable moves to the downside on the day, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index slumping by 2.2 percent and 1.7 percent, respectively.

Semiconductor and oil stocks also saw considerable weakness, while gold stocks bucked the downtrend despite a modest decrease by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.89 to $95.87 a barrel after tumbling $1.72 to $94.98 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,717.10, down $0.60 compared to the previous session’s close of $1,717.70. On Tuesday, gold edged down $1.40.

On the currency front, the U.S. dollar is trading at 136.85 yen compared to the 136.91 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0145 compared to yesterday’s $1.0117.


Asian stocks ended mixed on Wednesday after Alphabet and Microsoft reported better than feared quarterly results, helping soothe investor worries over the economic outlook.

Market participants awaited the Fed's interest rate decision later in the day, with a 75 basis point rate hike mostly priced in.

The FOMC statement and accompanying press conference by Fed Chair Jerome Powell will take center stage as bond markets and most economic indicators signal an increased likelihood of recession.

China's Shanghai CompositeIindex moved in a narrow range before closing marginally lower for the day. Hong Kong's Hang Seng Index fell 1.1 percent to 20,670.04, with Alibaba and Nio leading losses.

Ahead of an expected rate hike in the United States, the city's financial secretary said Hong Kong would have no choice but to raise interest rates in the coming months.

Japanese markets rose modestly, helped by gains by heavyweight chip-related stocks. The Nikkei 225 Index inched up 0.2 percent to 27,715.75, while the broader Topix closed 0.1 percent higher at 1,945.75.

Advantest, Screen Holdings and Tokyo Electron climbed 2-3 percent. Camera maker Canon fell over 1 percent despite raising its full-year operating profit forecast.

Seoul stocks rose for a third straight session, though the upside remained capped ahead of the Fed meeting and the U.S. GDP data release. Meanwhile, a measure of consumer sentiment in the country dropped by 10.4 points to 86 in July, the Bank of Korea said in a statement.

The Kospi edged up 0.1 percent to 2,415.53, led by biotechnology stocks. Samsung Biologics added 1.6 percent and Celltrion gained 1.9 percent.

Australian shares saw modest strength after data showed inflation rose slightly less than forecast in Q2, raising hopes of a less hawkish central bank policy. Official data showed that consumer price inflation jumped 1.8 percent last quarter, just short of market estimates of 1.9 percent.

The benchmark S&P/ASX 200 Index gained 0.2 percent to settle at 6,823.20, while the broader All Ordinaries Index ended 0.2 percent higher at 7,038.10.

Banks and gold miners surged, while mining heavyweights BHP and Rio Tinto fell around 2 percent each on lingering worries about a recession.

After market close, Rio Tinto, one of the world's top iron ore producers, reported a 29 percent drop in first-half profit.


European stocks are seeing modest strength on Wednesday ahead of the Federal Reserve's interest rate decision later in the day.

Markets have already priced in a 75 basis point rate hike. The accompanying statement and Fed Chair Jerome Powell's press conference may attract greater attention than the Fed's rate decision.

While the U.K.’s FTSE 100 Index has advanced by 0.7 percent, the German DAX Index and the French CAC 40 Index are both up by 0.5 percent.

In economic news, a survey showed German consumer sentiment will hit a fresh low in August. GfK's forward-looking barometer fell to -30.6 from revised -27.7 in July as fears of an impending recession and high inflation dampened economic and income expectations. The score was forecast to fall to -28.9.

A measure of French consumer confidence weakened for the seventh successive month in July to reach its lowest level in just over nine years.

Reckitt Benckiser has shown a substantial move to the upside after the consumer goods firm swung to an interim profit.

Lender Lloyds Banking Group has also jumped after hiking its dividend and full-year profitability forecast.

UniCredit has also surged. The Italian lender raised its 2022 outlook after a strong second quarter.

LVMH has also moved higher after the world's top luxury group reported better-than-expected second-quarter sales.

Meanwhile, German sportswear brand Adidas has shown a steep drop after cutting its full-year outlook.

Deutsche Bank has also tumbled. The bank warned of economic risks after posting a better-than-expected 51 percent rise in second quarter profit.

Chemical company BASF has also declined despite lifting its guidance for full-year revenues. Credit Suisse Group AG has also fallen after the Swiss bank posted its third straight quarterly loss.

U.S. Economic Reports

Reflecting a sharp increase in orders for transportation equipment, the Commerce Department released a report on Wednesday showing an unexpected surge in new orders for U.S. manufactured durable goods in the month of June.

The Commerce Department said durable goods orders jumped by 1.9 percent in June after climbing by 0.8 percent in May. The continued increase surprised economists, who had expected durable goods orders to dip by 0.4 percent.

Excluding the spike in orders for transportation equipment, durable goods orders rose by 0.3 percent in June following a 0.5 percent increase in May. Economists had expected ex-transportation orders to edge up by 0.2 percent.

At 10 am ET, the National Association of Realtors is scheduled to release its report on pending home sales in the month of June. Pending home sales are expected to slump by 1.5 percent in June after climbing by 0.7 percent in May.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 22nd. Crude oil inventories are expected to decrease by 1.0 million barrels after edging down by 0.4 million barrels in the previous week.

The Federal Reserve is scheduled to announce its latest monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of Teva Pharmaceutical (TEVA) are soaring in pre-market trading after the Israeli drugmaker announced an agreement to pay up to $4.25 billion to settle thousands of lawsuits over its role in the nationwide opioid crisis.

Restaurant chain operator Chipotle Mexican Grill (CMG) is also likely to see initial strength after reporting better than expected second quarter results, with price increases helping to offset higher costs.

Meanwhile, shares of Shopify (SHOP) are seeing considerable pre-market weakness after the e-commerce platform provider reported a wider than expected second quarter loss.

GPS device maker Garmin (GRMN) may also come under pressure after reporting second quarter earnings that beat estimates but weaker than expected revenues.
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