Stocks Shrug Off Negative Microsoft News to Settle Mixed

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.27%.

Stocks on Wednesday settled mixed.  Stocks on Wednesday initially sold off sharply when Microsoft tumbled after it warned about a slowdown in sales, raising concerns the economy is faltering.  The slump in Microsoft also undercut other software and cloud-computing stocks such as Adobe and Alphabet.  However, a rally in media stocks lifted the overall market from its worst levels, with the Dow Jones Industrials eking out a modest gain.

Geopolitical concerns also weighed on stocks Wednesday on fears that the decision by Germany and the U.S. to provide Ukraine with tanks might provoke an escalation in the Russia-Ukraine war.

Negative corporate news Wednesday also weighed on stock indexes. Norfolk Southern and Intuitive Surgical fell more than -5%, and Automatic Data Processing fell more than -4% after reporting disappointing quarterly earnings.  Also, Kimberly-Clark Q4 dropped more than -2% after reporting weaker-than-expected Q4 net sales.

A rally in media socks Wednesday was supportive of the overall market.  Also, Capital One Financial rallied more than +8% after reporting stronger-than-expected Q4 revenue, and AT&T climbed more than +6% after reporting better-than-expected Q1 EPS.

Credit Suisse said it is too early to increase risks in stock portfolios and said markets are pricing in too much optimism regarding the path of inflation and central bank actions.  Credit Suisse warns that corporate earnings are set to remain under pressure, with margins falling from record levels, as economic growth falters and higher interest rates raise financing costs and pricing power wanes.

Overseas markets Wednesday settled mixed.  The Euro Stoxx 50 index closed down -0.12%, and Japan’s Nikkei Stock index closed up +0.35%. China and Hong Kong remain closed for the Lunar New Year holidays. 

Today’s stock movers…

Microsoft (MSFT) closed down -0.59% but well above losses of more than -4% after reporting Q2 revenue of $52.75 billion, below the consensus of $52.93 billion, and forecasting that Q3 sales in its Azure cloud-computing business will slow by 4 or 5 points from the end of Q2. Other cloud stocks fell on the Microsoft news, with Datadog (DDOG) closing down more than -3%, Alphabet (GOOGL) closing down more than -2%, and Adobe (ADBE) closing down -0.8%.

Nasdaq (NDAQ) closed down more than -6% after forecasting 2023 operating expenses of $1.77 billion to $1.85 billion, the midpoint above the consensus of $1.78 billion.

Intuitive Surgical (ISRG) closed down more than -5% to lead losers in the Nasdaq 100 after reporting Q4 revenue of $1.66 billion, below the consensus of $1.68 billion and saying it won’t launch a new multiport robotic system in fiscal 2023, removing a positive catalyst for the stock.

Norfolk Southern (NSC) closed down more than -5% after reporting Q4 EPS of $3.42, below the consensus of $3.43.

Automatic Data Processing (ADP) closed down more than -4% after reporting Q2 professional employer organization (PEO) services revenue of $1.50 billion, weaker than the consensus of $1.52 billion, and cutting its 2023 PEO services growth estimate to 8%-9% from a prior estimate of 10%-12%. 

3M Co (MMM) closed down more than -1% Wednesday to lead losers in the Dow Jones Industrials.  3M added to Tuesday’s -6% plunge after nine analysts cut their price targets on the stock by an average of 7% after 3M reported weaker-than-expected Q4 earnings. 

Kimberly-Clark (KMB) closed down nearly -2% after reporting Q4 net sales of $4.96 billion, weaker than the consensus of $4.97 billion.

Texas Instruments (TXN) closed down more than -1% after forecasting Q1 revenue of $4.17 billion to $4.53 billion, the midpoint below the consensus of $4.41 billion. 

MarketAxess Holdings (MKTX) closed up more than +10% to lead gainers in the S&P 500 after reporting Q4 EPS of $1.58, better than the consensus of $1.54. 

Capital One Financial (COF) closed up more than +8% after reporting Q4 net revenue of $9.04 billion, above the consensus of $9.01 billion, and setting aside $2.42 billion for loan losses, well above the consensus of $1.85 billion.

Media stocks rallied Wednesday after Rupert Murdoch said he was abandoning plans to explore a recombination of Fox Corp and News Corp, two media companies he controls.  Warner Bros Discovery (WBD) closed up more than +8% to lead gainers in the Nasdaq 100.  Also, Paramount Global (PARA) closed up more than +5%, and News Corp (NWSA) closed up more than +4%.  In addition, Walt Disney (DIS) closed up +2%  to lead gainers in the Dow Jones Industrials.

AT&T (T) closed up more than +6% after reporting Q1 adjusted EPS of 61 cents, above the consensus of 56 cents.

U.S. Bancorp (USB) closed up more than +5% after reporting Q4 net interest margin of 3.01%, better than the consensus of 2.94%.

Progressive Corp (PGR) closed up more than +4% after reporting Q4 net premiums earned of $12.89 billion, above the consensus of $12.82 billion, and Q4 net premiums written of $12.46 billion, stronger than the consensus of $12.37 billion.

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed up +3.5 ticks, and the 10-year T-note yield fell by -0.8 bp to 3.445%.  Weakness in stocks Wednesday sparked some safe-haven buying of T-notes.  Also, geopolitical risks in Europe boosted safe-haven demand for T-notes on concern the war in Ukraine may escalate after the U.S. and Germany agreed to supply Ukraine with battle tanks.  In addition, strong demand for the Treasury’s $43 billion auction of 5-year T-notes gave T-note prices a lift as the auction had a bid-to-cover ratio of 2.64, well above the 10-auction average of 2.40 and the strongest in nearly 2-1/2 years.  A bearish factor was an increase in inflation expectations after the 10-year breakeven inflation expectations rate Wednesday rose to a 3-week high of 2.297%.

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