Tech Earnings Impact Nasdaq Futures Ahead of Fed Verdict

Subdued Futures Reflect Tech Giants’ Performance

In the aftermath of tech juggernauts Alphabet and Microsoft revealing their quarterly results, Nasdaq 100 futures witnessed a decline of 0.8% during Tuesday night trading. Simultaneously, futures linked to the S&P 500 slid by 0.4%, while the Dow Jones Industrial Average stocks hovered near the flatline. The pullback in these futures followed after-hours trading, where Alphabet shares dipped more than 5%, and Microsoft slipped nearly 1%. Despite both companies exceeding expectations on top and bottom lines, Alphabet’s ad revenue fell short of analysts’ projections.

Short-Term Volatility in Tech Futures

This counterintuitive dip in Alphabet and Microsoft shares, despite positive earnings, raises speculations of a short-term market trend. Analysts, including Sam Stovall, Chief Investment Strategist at CFRA Research, suggest a ‘buy on rumours, sell on news’ dynamic may be at play. Stovall emphasizes that investors, despite favourable results, might be opting to cash in, contributing to the observed decline.

Futures Concerns in the Tech Sector

The tech sector, a driving force behind the market rally from 2023 into 2024, now faces scrutiny due to its relatively high valuation, standing at nearly 29 times its 2024 earnings. Stovall notes that sustaining these elevated price-to-earnings levels requires substantial earnings expansion. Investors, in the current landscape, demand tangible results to justify these premium valuations. Stovall suggests that it is now a critical juncture for tech firms to demonstrate earnings growth.

Market Focus Shifts to the Federal Reserve

As the market processes the implications of tech earnings, attention shifts to the Federal Reserve’s imminent decision on rate policy. The Fed Funds futures market indicates a nearly 98% probability that the central bank will maintain existing rates, according to the CME FedWatch tool. Traders and investors anticipate insights into potential shifts in the central bank’s policy stance through post-meeting statements and remarks from Fed Chair Jerome Powell.

Gradual Fed Pivot and International Considerations

Chief Economist Luke Tilley of Wilmington Trust anticipates a gradual pivot by the Federal Reserve toward laying the groundwork for rate cuts later in the year. Tilley notes the slow and deliberate nature of Fed communication changes, comparing it to turning a battleship. While not expecting major shifts in futures immediately, Tilley suggests the Fed might highlight international developments, such as the Middle East conflict, as factors influencing a cautious approach to inflation.