Nasdaq 100 Tumbles as Microsoft, Alphabet Earnings Disappoint

  • Tech-heavy index posts its biggest drop in two weeks
  • Energy producers rally with crude while banks rebound

Inside Alphabet's Earnings Numbers

Disappointment with earnings pummeled shares of Microsoft Corp. and Google parent Alphabet Inc., sending the Nasdaq 100 Stock Index to the steepest drop in two weeks.

While the tech-heavy Nasdaq slid, gains in crude oil boosted energy producers, curbing the Standard & Poor’s 500 Index’s decline. Technology shares in the benchmark index capped the biggest slide since Feb. 5, with Microsoft and Alphabet down at least 5 percent. Banks rebounded to a three-month high, and Norfolk Southern Corp. jumped the most since November as earnings beat estimates and the railroad increased its cost-cutting goal.

The Nasdaq 100 dropped 1.5 percent to 4,474.19 at 4 p.m. in New York, paring a 2.2 percent retreat, with Microsoft falling the most in almost 15 months. The S&P 500 was little changed at 2,091.58, wiping out a 0.5 percent decline. The gauge gained 0.5 percent for the week. The Dow Jones Industrial Average added 21.23 points to 18,003.75, erasing a 72-point slide. The Russell 2000 Index climbed 1 percent as energy shares jumped 3 percent.

“The big tech names that have reported in the last day are having a negative influence on major index returns,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “Valuations in the U.S. equity market are full, so market participants are becoming more demanding about what they’re expecting for future gains. The news on the economic front has been steady, if not unspectacular, and the earnings picture has been mixed at best.”

With the flow of corporate earnings picking up, equities have lost momentum in the last three sessions as results failed to inspire investors to fatten a rally that’s lifted the S&P 500 more than 14 percent from a 22-month low in February. A recovery in oil prices, optimism that central banks will continue their efforts to boost growth and signs of improvement in China had bolstered the rebound, with the gauge this week briefly coming within 1 percent of a record set last May.

The advance has come even as profits are forecast to slide at the steepest pace since the financial crisis. Analysts project first-quarter income shrank 9.3 percent at S&P 500 firms, compared with predictions for flat growth at the start of the year. With 130 index members having reported, roughly 82 percent have beaten profit estimates, while 59 percent have exceeded sales predictions.

Coca-Cola Co. and Travelers Cos. rebounded Friday from selloffs this week following their results, with both advancing more than 1.8 percent to help the Dow and S&P 500 wipe out earlier losses. Wells Fargo & Co. and Bank of America Corp. climbed at least 1.1 percent to lead banks to a fourth gain in five days.

Along with earnings, investors’ attention will also turn to the Federal Reserve’s looming two-day meeting, with an interest-rate decision due on Wednesday. Traders are pricing in zero chance the Fed will raise rates next week, pegging November as the first month with at least even odds for a boost.

Central Banks

Meanwhile, the Bank of Japan may offer a negative interest rate on some loans to spur lending, according to people familiar with talks at the central bank, duplicating a policy the European Central Bank adopted in March. The ECB yesterday left its rates at record lows and kept the size of its bond-buying program unchanged.

In Friday’s trading, eight of the S&P 500’s 10 main industries rose, while technology shares lost 1.9 percent and consumer discretionary companies slipped. Energy producers added 1.3 percent. The Chicago Board Options Exchange Volatility Index fell 5.2 percent to 13.22. The measure of market turbulence known as the VIX is down 5.2 percent for the month, holding near the lowest levels since August. About 7.4 billion shares traded hands on U.S. exchanges, 8 percent below the three-month average.

Facebook Inc. amplified the rout in technology sparked by Alphabet and Microsoft, with the social network’s shares losing 2.5 percent, after falling as much as 3.9 percent. Visa Inc. sank 2.1 percent after agreeing to amend the terms of its planned acquisition of Visa Europe Ltd, while quarterly results at the world’s largest payments network exceeded analysts’ forecasts.

Software Shares

Software companies in the S&P 500 slumped along with Microsoft, falling 3.1 percent to a four-week low after the group just reached an all-time high on Monday. Adobe Systems Inc. and Red Hat Inc. lost at least 1.6 percent.

American Airlines Group Inc. was the biggest decliner in the Dow Jones Transportation Average, slipping 4.5 percent. The world’s largest airline carrier said today it was disappointed with its first-quarter revenue and cautioned that passenger revenue for each seat flown a mile, a benchmark gauge for airlines, will continue falling all year.

Hawaiian Airlines parent Hawaiian Holdings Inc. plunged 11 percent after its quarterly revenue was short of estimates and the company provided an outlook. The shares had rallied 58 percent from a February low to an all-time high on Tuesday. A Bloomberg index of U.S. airlines lost 2.4 percent Friday to finish the worst week since February.

Energy, Banks

Energy companies in the S&P 500 closed at the highest level since Dec. 1 as West Texas Intermediate crude futures added 1.3 percent, a third weekly advance as declining U.S. production provided more evidence that the market is rebalancing.

Southwestern Energy Co. surged 15 percent to a five-month high after reporting profit and sales that exceeded consensus analyst estimates. Anadarko Petroleum Corp. and Chesapeake Energy Corp. climbed at least 5 percent.

The S&P 500 Financials Index increased 1 percent, its ninth gain in the last 11 trading days. SunTrust Banks Inc. rallied 5.2 percent to a 2016 high after reporting earnings and revenue that beat forecasts. Comerica Inc. and E*Trade Financial Corp. added more than 3.1 percent.

Consumer discretionary stocks fell as Starbucks Corp. lost 4.9 percent, its steepest selloff in more than two months, after posting quarterly sales that trailed estimates as growth in the coffee giant’s Americas region slowed. Royal Caribbean Cruises Ltd. and Marriott International Inc. decreased more than 2.4 percent, while Inc. lost 1.7 percent, slipping for the third time in four days.

Advanced Micro Devices Inc. was one of the bright spots in tech, soaring 52 percent, the most on record, after saying it’s licensing technology to a Chinese, state-backed joint venture that will produce server processors for that country’s market.

Before it's here, it's on the Bloomberg Terminal.