Wall Street falters on weaker earnings

Other big tech-focused companies, including Tesla and IBM, are expected to release earnings after the close.

The amount of cash and earnings that companies generate is one of the main levers that drive stock prices on Wall Street. The other big one depends largely on interest rates, and there’s still a big disconnect between what investors and the Federal Reserve expect later this year.

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Almost everyone expects the Fed to hike its federal funds rate by 0.25 percentage point on February 1st. That would be another cut in the magnitude of the Fed’s rate hikes, from 0.50 points last month and four consecutive 0.75 point hikes earlier. A slowdown in inflation since a summer peak raises hopes that the Fed will put less additional pressure on the economy.

Many investors are expecting inflation to cool further and are betting that the Fed will actually start cutting interest rates later this year. The Federal Reserve, on the other hand, has insisted that will not be the case. She says she wants to keep interest rates high at least until the end of the year to ensure high inflation is truly eradicated.

Higher interest rates hurt the economy by making it more expensive for businesses and households to borrow. They also hurt the prices of stocks and other investments.

The yield on the 10-year government bond, which helps set interest rates on mortgages and other economy-impacting loans, rose to 3.47 percent from 3.46 percent late Tuesday. The two-year yield, which is moving closer to the Fed’s expectations, fell to 4.15 percent from 4.21 percent.

In overseas equity markets, Indian company Sensex fell 1.2 percent after a prominent short selling firm, Hindenburg Research, accused the Adani Group conglomerate of stock manipulation and accounting fraud. Adani was founded by one of the richest men in the world, and the group’s chief financial officer called the report “a malicious combination of selective misinformation and outdated, baseless and discredited allegations that have been examined and dismissed by India’s highest courts”.

Elsewhere, European equities were slightly lower. Japanese and South Korean stocks rose while Chinese markets remained closed for the holiday.

AP