Traders are working at the New York Stock Exchange (NYSE) in New York City, U.S., on January 29, 2024.Brendan Mcdermid | ReutersFutures linked to the technology-heavy Nasdaq 100 dropped Tuesday night following the quarterly results of two mega-cap tech companies. Wall Street also had its eye on the Federal Reserve’s rate policy decision. Nasdaq 100 futures dropped by 0.8%. S&P 500 futures were down 0.4%, while Dow Jones Industrial Average futures traded near the flatline. In after-hours trading, Alphabet shares fell more than 5%, and Microsoft slipped nearly 1% after the tech giants reported their quarterly earnings. Despite both companies surpassing expectations in terms of revenue and profit, Alphabet’s ad revenue fell short of analysts’ forecasts. The decline in Alphabet and Microsoft shares, despite their largely positive results, could be a short-term trend known as “buy on rumors, sell on news,” according to Sam Stovall, chief investment strategist at CFRA Research. “Even though you’re getting better-than-expected results, people may be selling because they just want to take the money and run,” he said. The tech sector, which has been driving the market rally from 2023 into 2024, is currently trading at a relatively high valuation of nearly 29 times its 2024 earnings, according to Stovall. With this in mind, investors will need to see earnings growth in order for tech companies to maintain their elevated price-to-book levels, said the strategist. “It’s not that investors will be willing to pay up and have multiple expansion later, but rather — now it’s time to put up or shut up,” Stovall said. “It’s time to increase the earnings to justify these higher valuations.” These actions come after a mixed day for stocks, with the S&P 500 edging down by 0.06% and the Nasdaq Composite losing 0.76%, while the Dow increased by 0.35%. The Fed’s rate decision will be at the forefront of traders’ minds on Wednesday. The fed funds futures market has indicated a nearly 98% likelihood that the central bank will keep rates unchanged, according to the CME FedWatch tool. Investors will be watching for any hints of shifts in the central bank’s policy stance in its post-meeting statement and in Fed Chair Jerome Powell’s remarks. Policymakers will likely pursue a “later and fewer approach,” in which the Fed delays rate cuts later than what the majority of the market expects, said Stovall. “The Fed doesn’t want to repeat the mistakes of the past about being too aggressive with the rate cuts,” Stovall said. On the earnings front, Dow-member Boeing will release its results Wednesday before the bell. Chipmaker Qualcomm is set to announce its quarterly earnings after the market closes.
