Tech Heavy Nasdaq Drops 2% On Earnings Worries

Barry Adams
26 Oct, 2022
New York City

In volatile trading, benchmark indexes on Wall Street closed down after leading tech companies announced revenue growth slowdown and a mixed bag of earnings. 

The latest quarterly results from Microsoft and Google highlighted a sharp slowdown in digital advertising, 

The results also dragged Facebook parent Meta Platforms down5.6%. 

After the close, Meta plunged additional 7% after the company reported weaker-than-expected earnings and offered fourth quarter guidance that disappointed investors.  

In addition, investors worried aggressive rate hike from the Federal Reserve next week may weaken the economy further and continue future corporate earnings. 

The S&P 500 index declined 0.7% to 3,830.68 and the Nasdaq Composite index dropped 2.1% to 10,970.99. 

Mortgage rates rose above 7% and the European Central Bank is set to lift its key lending rate by a large-size for the second time in a row on Thursday. 

The Federal Reserve is also widely expected to lift its key lending rate by 75 basis points at the end of the 2-day meeting on November 2. 

Crude oil rose $2.68 to $87.97 a barrel and natural gas edged down 5 cents to $5.52 a thermal unit. 

The yield on 2-year Treasury notes eased to 4.46%, on 10-year notes dropped to 4.01% and 30-year bonds fell to 4.15%. 

 

Mortgage Rates Above 7%

Mortgage rates crossed 7% and increased for the 1-th week in a row, according to the data from the Mortgage Bankers Association. 

The 30-year fixed-rate mortgage on balances less than $647,200 rose 22 basis points to 7.1% in the week ending on October 21, 2022. 

Rates have jumped from 3% a year ago and have been rising following the rise in Treasury yields. 

 

New Homes Sales Drop In September 

New home sales declined sharply in September as higher prices and a sharp rise in mortgage rates kept buyers away. 

New single-family home sales annual rate after adjusting for seasonal factors dropped to 603,000, from 677,000 in August, according to the data released by the e U.S. Census Bureau and the Department of Housing and Urban  Development.

New home sales fell 10.9% from August and dropped 17.6% from a year ago rate of 732,000. 

The median sales price of new homes sold in September 2022 was $470,600 and the average sales price was $517,700.

Home sales are likely to remain depressed as mortgage rates have been rising, tracking higher Treasury yields in October.  

Mortgage rates rose 22 basis points to 7.1% in the week ending October 21, 2022, according to the latest data released by the Mortgage Bankers Association. 

At the current sales rate, new home supply is 462,000, representing 9.2 months of supply.  

 

Stock Movers 

Alphabet Inc fell 7.8% to $96.34 in after hours trading and the search engine operator said revenue in the third quarter increased 6% to $69.1 billion from $65.1 billion a year ago. 

Net income in the period fell to $13.9 billion from $18.9 billion and diluted earnings per share dropped to $1.06 from $1.40 a year ago. 

Alphabet's sales growth slowed sharply to 6% from 41% a year ago, highlighting pullback in corporate advertising from providers of financial services, mortgage and loans and insurance and crypto industry. 

Boeing Company declined 1.1% to $145.10 despite the aerospace company reporting unexpected quarterly loss on issues linked to its Airforce One tanker program in addition to ongoing commercial plane production challenges. 

Carnival Corp jumped 1.2% to $8.72 after the cruise line operator's subsidiary completed $2.03 billion senior debt offering secured by cruise vessels valued at $28 billion.   

The new debt maturing in 2028 will refinance the current debt maturing in 2022. 

Chipotle Mexican Grill, Inc fell 5.2% to $1,502.23 after the fast-food restaurant chain  operator said revenue in the third quarter increased 13.7% to $2.2 billion and comparable restaurant sales increased 7.6%. 

Net income in the third quarter was $257.1 million or $9.20 a diluted share compared to $204.4 million or $7.18 a diluted share a year ago. 

Stock declined after restaurant traffic eased on higher prices and looming recession and stretched consumer budget may dampen future comparable store sales.   

Hilton Worldwide gained 2.2% to $1.30.64 after the company posted better-than-expected earnings and raised its estimate for full-year earnings on the sustained rise in travel demand. 

Microsoft Corporation plunged 6.3% to $234.72 after the company said revenue in fiscal first quarter ending in September increased 11% to $50.1 billion and net income decreased 14% to $17.6 billion from a year ago. 

Diluted earnings per share declined 13% to $2.35 from a year ago. 

The stock declined sharply after the company cited weakness in its cloud business and earnings were ahead of expectations but growth slowed to the slowest pace in five years. 

Search and news advertising sales growth declined to 16% from 40% a year ago and sales have growing at a slower pace every quarter in a row for a year, reflecting general weakness in online advertising. 

 

Volatile European Markets Advance, ECB Rate Decision Looms

 In volatile trading, European markets lacked direction ahead of the central bank's rate decision and rate-path direction. 

The European Central Bank is widely expected to lift its key rate by 75 basis points after the policymaker's meeting on Thursday. 

Despite the rising political pressure across the euro zone, the ECB is expected to increase rate by a large-size for the second time in a row and third time this year. 

The current key lending rate of 75 basis points is lagging the 4-decade high inflation rate of above 10%. 

Investors are also awaiting comments on when the ECB is likely to begin its process of selling government bonds after years of expanding its balance sheet dating as far back as euro crisis in 2011.  

The DAX index increased 1.1% to 13,195.81, the CAC-40 index edged up 0.41% to 6,276.34 and the FTSE 100 index increased 0.6% to 7,056.67. 

Brent crude edged up 67 cents to $97.10 a barrel and TTF natural gas rose 2% to