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Traders work on the floor of the New York Stock Exchange (NYSE) on January 29, 2024 in New York City, USA.
Brendan McDiarmid | Reuters
Futures for the tech-heavy Nasdaq 100 index fell on Tuesday night after two giant tech companies reported their quarterly results. Wall Street was also closely watching the Fed’s decisions on interest rate policy.
Nasdaq 100 futures fell 0.8%. Futures tracking the S&P 500 fell 0.4%, and Dow Jones Industrial Average futures were trading nearly flat.
In after-hours trading, Alphabet shares fell more than 5% and Microsoft fell nearly 1% after the tech giants reported quarterly results. Indeed, both companies were able to win both in sales and bottom line. However, Alphabet’s advertising revenue fell short of analysts’ expectations.
According to Sam Stovall, chief investment strategist at CFRA Research, the decline in Alphabet and Microsoft’s stock prices, despite the generally strong performance of both companies, is more a result of a short-term “buy on rumors and sell on news” trend. It is said that there is a possibility that
“Even though the results are better than expected, some people may be selling just because they want to take their money and run,” he said.
Stovall said the tech sector, which has driven the market rally from 2023 to 2024, now trades at a relatively high valuation of about 29 times 2024 earnings. With this in mind, investors need to see earnings growth for tech companies to maintain high price-to-book multiples, the strategist said.
“It’s not that investors are willing to pay money to expand multiple times later, but rather it’s a time to put up or shut up,” Stovall said. “The time has come to increase revenue to justify these high valuations.”
The move comes after a mixed day for stock prices. On Tuesday, the S&P 500 index fell 0.06% and the Nasdaq Composite Index fell 0.76%. The Dow Jones Industrial Average rose 0.35%.
The Fed’s interest rate decision will be the biggest concern for traders on Wednesday. The federal funds futures market has priced in a nearly 98% probability that the central bank will keep interest rates unchanged, according to the CME FedWatch tool. Investors will be looking to post-meeting statements and comments from Fed Chairman Jerome Powell for clues about a change in the central bank’s policy stance.
Stovall said policymakers are likely to adopt a “slower and less approach” in which the Fed begins lowering rates later than most markets expect.
“The Fed does not want to repeat its past mistakes of being too aggressive in lowering interest rates,” Stovall said.
On the earnings front, Dow stock Boeing is scheduled to report results before the bell on Wednesday. Chipmaker Qualcomm is scheduled to release its quarterly results after the market close.
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