Fed Holds Rates With Two Dissents as Alphabet Falls and Microsoft Gains on Earnings

The Fed left rates unchanged with two members favouring a hike, while Alphabet and Microsoft earnings drew opposite market reactions. Asian and European company results were mixed.

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Fed holds rates, with two dissents for a hike

The Federal Reserve left interest rates unchanged on Wednesday, in its last meeting before the US midterm elections, according to The Guardian. The same report says two of the 12 voting members preferred a quarter-point increase, that Fed chair Kevin Warsh said politics played no role in the decision, and that inflation remains above 3%. The decision is also recorded in the Fed's FOMC statement. Asian currencies were mixed on Thursday as the dollar steadied after the hold, with attention turning to the next PCE inflation reading, Investing.com reported.

Big Tech earnings split investors

Results from two of the largest US companies produced very different market reactions.

  • Alphabet: Net profit fell 25% from a year earlier to $26.2 billion ($2.12 a share), well short of analyst expectations, while revenue rose to $127.6 billion, The Guardian reported. Shares fell more than 10% in after-hours trading amid a slowdown in advertising and continued heavy AI spending. MarketWatch noted that a doubling of cloud revenue did not offset investor concern that AI is weighing on the company's ability to monetise search queries.
  • Microsoft: The company reported quarterly revenue of $92.3 billion and profit of $36.6 billion, both ahead of Wall Street expectations, with its Azure cloud division growing 48%, according to The Guardian. The results came days after it offered voluntary buyouts to about 60,000 employees, as the BBC noted. MarketWatch said investors were encouraged that Microsoft is growing quickly while keeping spending in check.

Software and cybersecurity stocks under pressure

Other earnings reports showed a more cautious market for software. ServiceNow shares slid after an earnings miss, even though the company raised its AI outlook. Cybersecurity stocks were broadly lower after Fortinet reported a sharp slowdown in growth in one business segment. In optical components, MarketWatch reported that Lumentum's stock rose on a Bloomberg report that an agreement for a sale to Marvell could come next week. That report is unconfirmed.

Asia and Europe: autos and consumer names in focus

In Asia, Japan's Nikkei 225 closed up 1.00% on Thursday, per Investing.com. Hyundai Motor lowered its sales outlook as strikes hit third-quarter deliveries.

In Europe, company results were mixed. Volkswagen reported a third-quarter loss that widened more than expected, raising the stakes on its restructuring. Adidas posted a record third-quarter profit and raised its full-year outlook, while AB InBev beat third-quarter revenue and profit expectations on premium brands. Separately, ING announced a shareholder distribution of up to 1.9 billion euros, including a 1.65 billion euro buyback.

What to watch

The Fed's split vote, with inflation above 3%, keeps the rate outlook uncertain. The next PCE inflation data and further AI-related earnings are likely to be the next tests for markets, going by the sources above.

Sources