S&P 500 Futures Turn Lower After Microsoft and Alphabet Post Mixed Earnings. Now What?

S&P 500 Futures Turn Lower After Microsoft And Alphabet Post Mixed Earnings. Now What?

By Diego Colman of DailyFX

Tuesday, October 25, 2022 5:25 PM EST

U.S. equity futures moved lower in extended trading after two tech giants posted mixed financial results, halting the S&P 500 recovery and preventing the index from reclaiming the psychological 3,900 level.

Microsoft announced earnings per share of $2.35 on revenue of $50.12 billion. For context, analysts polled by Bloomberg anticipated EPS of $2.29 on sales of $49.56 billion. Strong execution was driven by the intelligent cloud unit, which grew 20% year-over-year amid sustained demand for consumption-based services. Meanwhile, performance was hampered by weakness in the More Personal Computing segment and FX headwinds.

Meanwhile, Alphabet reported quarterly sales of $69.09 billion versus $70.58 billion expected, with the adjusted bottom line clocking in at $1.06 compared to an estimate of $1.25. Dismal numbers can be attributed to the sharp slowdown in Google’s advertisement, the firm’s most valuable segment and cash cow, a sign that the outlook for the digital ad market is worsening amid reduced spending by advertisers.

Here are the most important numbers from the financial disclosure:

MICROSOFT (MSFT)

Earnings: $2.35 versus $2.29 expected

Revenue: $50.12 billion versus $49.56 billion expected

ALPHABET (GOOG)

Earnings: $1.06 versus $1.25 expected

Revenue: $69.09 billion versus $70.58 billion expected

MARKET REACTION

Alphabet shares fell sharply after hours, retreating nearly 6% from the close. Microsoft stocks also took a turn to the downside, losing about 2.5%, as the pace of growth in the company's cloud division slowed compared to previous quarters.

With two of the largest firms by market capitalization penalized for reporting uninspiring results, the technology sector could come under selling pressure in the coming days, a scenario that could put the brakes on the recent rebound of the S&P 500. In this context, stocks will find it difficult to extend their recovery in the short term, so a pullback should not be ruled out ahead of the FOMC decision next week.