U.S. stock rally set to stall after Microsoft and Alphabet earnings disappoint

What’s driving markets

Stocks were on course to snap a three-day winning streak after poorly-received earnings reports from Microsoft
MSFT,
+1.38%,
Alphabet
GOOG,
+1.90%
and Texas Instruments
TXN,
+0.32%
poured cold water on bulls’ new-found optimism. All three shares were trading at least 6% lower in premarket trading.

The S&P 500 has jumped 5.3% since Thursday’s close as a generally positive third quarter earnings season, and hopes the Federal Reserve may be less aggressive in hiking rates after some weak economic data, sparked another burst of risk appetite.

“The latest data was good for inflation expectations, and good for recession fears, which both temper the Fed hawks a week before the Fed is preparing to announce another 75 basis point hike in its rates.,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Ian Williams, analyst at Peel Hunt, agreed. “Most of the earnings news released in the past 24 hours provided reassurance in the face of the economic downturn, and a pullback in yields also helped equity market sentiment yesterday,” he said.

Disappointing Alphabet and Microsoft numbers hit after the close Tuesday, alongside equally gloomy results from Texas Instrument.

“With its chips used across a variety of goods, the [T.I.] CEO’s comments about weakness in both personal electronics and industrial sectors is telling about demand in the broader economy,” said analysts at Deutsche Bank

Attention will next turn to results from Meta
META,
+6.01%,
due after the market close, and then Apple
AAPL,
+1.93%
and Amazon.com
AMZN,
+0.65%
on Thursday.

Helping to alleviated losses in the broader indices is the continued slide on Wednesday in bond yields
TMUBMUSD10Y,
4.056%
and the dollar
DXY,
-0.62%.

U.S. economic updates set for release on Wednesday include trade in goods for September, due at 8:30 a.m., and September new home sales, released at 10 a.m. All times Eastern.