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Why are stocks down today?


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Multiple factors are pushing stocks lower today as stocks struggle against challenging market conditions. The best result of the week so far is Microsoft (NASDAQ:MSFT) which released its third quarter 2022 results last night. The tech giant released positive data that sent shares up 4% in after-hours trading. However, as Yahoo finance reports, the report’s overriding theme is caution, maintaining optimism for growth in the year ahead. MSFT stock falls today as markets adjust to this news and brings many other stocks with it.

Meanwhile, the Federal Open Markets Committee (FOMC) is gearing up for its first meeting of the year on February 1. These meetings tend to generate uncertainty as investors prepare for market-shaking rate hikes. Although the evidence suggests that inflation is slowing, that probably won’t be enough to compel the Federal Reserve to suspend rate hikes. Until the end of the meeting, investors will prepare for the impact.

Let’s take a closer look at what is pushing the markets lower today and what investors can expect.

Factors Pushing Stocks Down Today

As noted, MSFT stock is down, generating enough negative momentum to drive many other stocks lower today. The company has shown encouraging growth, driven primarily by its Azure cloud computing platform. But while it recently extended its partnership with the maker of ChatGPT Open AI, Microsoft also recently laid off 5% of its workforce, which is about 10,000 employees. As Yahoo finance notes, a pessimistic tone and an emphasis on caution dominated the earnings call.

It’s worth noting that Microsoft isn’t the only company to recently release a pessimistic earnings report. Texas Instruments Incorporated (NASDAQ:TXN) also beat earnings estimates, but pointed out that demand could fall in the coming months. The combination of these two pessimistic forecasts that both urge caution does not inspire much confidence as the tech sector prepares to report earnings. And Wall Street is already deteriorating on MSFT. As Jefferies analyst Brent Thill said in a client note:

“We are trimming our FY23 growth from 7.1% to 4.8% year-over-year (more than 10% year-over-year on canceled constant exchange rate guidance) as the macro economy continues to weigh on results with tough comparables and the weakest growth in commercial bookings in five years.”

With trouble on the horizon for the tech sector, now is not a good time for inflation fears to rise. But that is exactly what is happening as the FOMC prepares to meet next week. It is entirely possible that the Federal Reserve will implement smaller rate hikes as inflationary trends continue to subside. But that doesn’t mean we’ll see the pause in rate hikes that would boost equities. As Bloomberg reports, “Inflation remains well above their 2% target and a still tight labor market is likely to keep it high.” And even a smaller percentage rate hike will inevitably lead to greater volatility as markets adjust.

A recent statement from Federal Reserve Governor Lael Brainard also strongly suggests that US markets will see no pause in rate hikes. Last week she noted that: “Even with the recent moderation, inflation remains high and policy will need to be tight enough for some time to ensure that inflation returns to 2% on a sustainable basis.”

What happens after

It should remain a volatile week for the markets as the FOMC meeting looms. Microsoft and its peers will eventually shake off the negative energy that is pushing stocks lower today. But even a small rate hike will generate further turbulence, making it difficult for the markets as a whole to fully rebound.

At the date of publication, Samuel O’Brient held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for over three years. His areas of expertise are in electric vehicle (EV) inventory, green energy and NFT. O’Brient enjoys helping everyone understand the intricacies of economics. He is ranked in the top 15% of stock pickers on TipRanks.

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