Dow falls as Microsoft’s dismal forecast hits tech stocks

Wall Street’s main indexes dropped on Wednesday, as Microsoft’s outlook weighed down technology stocks, while a bleak quarterly report from Boeing added to fears of a recession.

The Dow tumbled 356 points, or 1.1%, to 33,377, the Nasdaq slid 1.8%, and the S&P 500 was down 1.3%.

Shares of Microsoft fell 3% after it warned that growth in its lucrative cloud business could stall, while its PC unit continued to struggle.

Amazon, Salesforce and ServiceNow, which have substantial cloud businesses, fell between 2.5% and 4.5%.

Other major growth stocks, including Apple, Alphabet and Tesla, also dropped between 1.5% and 3%.

Growth stocks, however, have enjoyed a bounce in January after a battering last year, with investors now focused on earnings reports to assess the impact of the Federal Reserve’s rate hikes and to gauge whether the renewed enthusiasm for these stocks will be sustained.


New York Stock Exchange traders
An overwhelming majority of traders expect the Federal Reserve to raise interest rates by another 25 basis points in its meeting next week.
JUSTIN LANE/EPA-EFE/Shutterstock

“The environment may look attractive because some of these cloud companies, like Salesforce, are down so much, but people are still skeptical because we’re heading into weaker economic news,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.

“We still have inflation, we still have the Fed raising interest rates, we’re seeing companies laying off thousands of peoples … We’re not completely through the cycle yet.”

An overwhelming majority of traders expect the Federal Reserve to raise interest rates by another 25 basis points in its meeting next week.

They now see the terminal rate peaking at 4.91% in June, even as Fed policymakers have repeatedly backed taking rates above the 5% level. 

Data later in the week is likely to show December personal consumption expenditure index fell 0.1% from a 0.1% rise in the prior month. Fourth quarter GDP advance numbers are also awaited.