Nasdaq on pace to enter corrective territory as tech shares lead U.S. stocks lower after mixed earnings

What’s driving markets

Technology stocks were under pressure on Wednesday after Google-parent Alphabet Inc. 
GOOG,
-9.30%

GOOGL,
-9.24%
reported its third-quarter earnings which showed a disappointing performance for its cloud-computing business, sending the company’s stock down 8.5%, on pace for its worst day in a year.

The S&P 500 communication services sector
XX:SP500.50,
which includes high-profile names as Alphabet, Meta Platforms
META,
-3.99%
and Netflix
NFLX,
-0.42%,
slumped 5.4% on Wednesday, on track for its worst day since October 2022, according to FactSet data.

Alphabet Inc.’s disappointing earnings outweighed optimism about Microsoft Corp.’s results
MSFT,
+3.12%,
which surprised investors with 28% constant-currency growth in its Azure cloud-computing business, above the company’s own forecast and the analysts’ projection.

“A plethora of earnings and corporate updates contained a steady dose of price increases that are getting passed onto the consumer,” said Edward Moya, market analyst at Oanda. “Today, Visa and Hilton highlighted that the consumer is hanging in there, which implies they can continue to take on price increases. ​Apple announced they are raising prices for its TV+, Arcade gaming and news,” Moya wrote in emailed comments. ​

With nearly a quarter of S&P 500 companies having reported results, 81.4% of those beat analyst expectations, notably better than the 67% of beats in a typical quarter since 1994, according to data from LSEG.

Tim Urbanowicz, head of research and investment strategy at Innovator ETFs, said despite good news so far in the third-quarter earnings season, investors need to back up and remember they are in a macro driven market. “A lot of the earnings news will take a backseat to the economic data,” he said in emailed comments on Wednesday.

“What we have seen historically is that interest-rate hikes impact earnings with about a two-year lag,” Urbanowicz noted. “Very consistently, one thing we have noticed is that earnings have never bottomed out before the Fed has finished its hike cycle.”

That is why rising U.S. Treasury yields are still weighing on the market sentiment this week, with the yield on the 10-year Treasury 
BX:TMUBMUSD10Y
up 12.7 basis points to 4.953% on Wednesday. Earlier this week, the benchmark 10-year rate traded above 5% for the first time in 16 years.

Companies releasing their results on Wednesday include Boeing
BA,
-2.36%,
T-Mobile
TMUS,
+0.08%
and General Dynamics
GD,
+3.90%
before Wall Street’s opening bell, followed by Meta Platforms
META,
-3.99%,
IBM
IBM,
-0.30%
and ServiceNow
NOW,
-4.25%
after the close.

In economic data, U.S. new-home sales rose 12.3% to an annual rate of 759,000 in September, from a revised 676,000 in the prior month, the Commerce Department reported Wednesday. The pace exceeded expectations on Wall Street. Economists had forecast new-home sales to total 680,000 in September.

Elsewhere, the Bank of Canada kept interest rates unchanged at 5% for a second straight meeting, saying steeper borrowing costs are dampening consumption, and bringing supply and demand closer to balance.

Companies in focus

• Texas Instruments Inc.
  TXN,
  -3.55%
  was 4.3% lower after the company missed quarterly forecasts and guided to earnings below Wall Street estimates.

• Boeing Co. 
  BA,
  -2.36%
  fell 1.7% on Wednesday after the aerospace and defense giant reported a wider-than-expected loss but topped revenue expectations and affirmed the full-year outlook for free cash flow.