Fed and Inflation Outlook Take Center Stage as Tech Stocks Dip

By: Miguel A. Rodriguez

11:24, 26 January 2023

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With a drop in shares of Microsoft, Amazon, and Boeing, the focus now shifts to the personal consumption expenditure data scheduled to be published tomorrow. 

On Wednesday, US stocks fell after Microsoft and Boeing reported lower-than-expected earnings, raising investor concerns about an economic downturn. 

Microsoft Corporation's stock dropped more than 3% to $214 during the session after the company warned of slowing revenue in its cloud services business. This weighed on other cloud providers' shares, including Amazon.com, which fell nearly 4% to $84 earlier in the trading day. 

Boeing Co. shares fell 3% after the company reported a fourth-quarter loss primarily due to production delays for its 777-9, which surprised the market. 

On Wednesday, the weakness in growth stocks contrasted with earlier this month, when the sector enjoyed a rally fueled by hopes that the Federal Reserve would reduce the pace of interest rate hikes.  

The market expects the Federal Reserve to raise interest rates by just a quarter of a percentage point when it meets next week. Last week, investors' attention shifted to focus more on economic growth and corporate profits than on the evolution of interest rates and inflation data.  

From a technical analysis perspective, it is observed that stock indices are struggling to overcome key resistance levels that mark the end of the downtrend. 

For about two weeks, the S&P500 has been hovering around the 4010-4020 zone, with no significant close above these levels. The bearish trend line that has been in effect since the start of 2022 has recorded a downward movement and is now passing through the 0.382% Fibonacci retracement level as well as the 100-week exponential moving average. Therefore, it is a key resistance zone that will require a strong impetus to make a breakthrough. 

The Personal Consumption Expenditure data is scheduled to be published tomorrow and this could possibly confirm that the current inflation rate is decreasing. Bucking this trend, however, the recently released quarterly earnings of some major tech companies have been better than anticipated. 

Sources:  Bloomberg, Reuters 

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