Stocks fell Wednesday after Microsoft’s quarterly earnings report fell far short of expectations, with the top technology stocks leading the drop as fears mount about how lackluster macroeconomic conditions will impact corporations’ financial health.
Microsoft fell 3.4% in early trading and dragged down its peers as all five stocks in the FAANG grouping — Facebook parent Meta (-0.8%), Amazon (-4%), Apple (-1.9%), Netflix (-0.8%) and Google parent Alphabet (-3.5%) — and Tesla (-3.4%) all were in the red.
Those seven companies lost $207.9 billion in market capitalization as of 10:20 a.m. EST, led by Microsoft’s $61.4 billion dip.
Stocks were down broadly amid the Microsoft-fueled earnings concerns, with the Dow Jones Industrial Average losing 1%, about 320 points, the S&P 500 down 1.4% and the tech-heavy Nasdaq down 2.1%.
The coming days will be crucial for these typically high-growth stocks, and for the market generally, with Tesla reporting earnings after the bell Wednesday and Meta, Amazon, Apple and Alphabet each reporting next week.
This earnings season should provide answers as to how companies can weather the storm of a looming recession, with Wedbush’s Dan Ives saying the top question heading into the period is: “How bad is it?” in a Monday note, while Morgan Stanley’s chief investment officer Michael Wilson’s mind is already set, writing in a Sunday note his model is “convincingly bearish” and an “earnings recession is imminent.”
The five companies that lost the most market value of any U.S. public companies Wednesday were Microsoft, Amazon, Apple, Alphabet and Tesla, according to companiesmarketcap.com.
Morgan Stanley predicts the S&P will fall as much as 25% to a two-year low of 3,000 during the first few months of 2023 as earnings disappoint. Long bastions of growth, the largest tech stocks largely underperformed the market in 2022, when all three indexes suffered their worst annual performance since 2008. Tesla, Meta, Amazon, Apple, Microsoft, Netflix, Alphabet each fell 27% or more last year, and Meta and Tesla’s 68% and 64% respective declines were among the 10 largest drops on the S&P. Microsoft, which reported its slowest quarterly revenue growth in six years but had significant growth in its crucial cloud business Wednesday, now faces a “standoff between the bulls and bears” among investors, according to Ives.
The West Coast titans are leading the charge in another way: Layoffs. Microsoft said earlier this month it will cut 10,000 jobs, joining Amazon (18,000), Alphabet (12,000) and Meta (11,000) in dramatically reducing their headcounts in recent weeks.