Markets Sway to the Tune of Earnings Reports and Economic Data

As the markets danced to the tune of earnings reports and economic data, Treasury yields dipped on Wednesday. The yield on the 10-year Treasury was trading more than two basis points lower at 3.4416%, while the yield on the 2-year Treasury was down by less than a basis point to 4.1497%. Bond prices and yields move in opposite directions.

Futures on the Dow Jones Industrial Average took a 79-point dip, the Nasdaq 100 shed 0.65% and S&P 500 futures fell 0.4%. Tech giant Microsoft's shares dropped about 1%, reversing earlier gains in after-hours trading, like a rollercoaster ride of emotions. Initially, shares rose after the company posted fiscal second-quarter per-share earnings that exceeded analysts’ estimates. But the shares took a nosedive after the company offered lacklustre guidance on its earnings call.

Investors are bracing themselves for more high-profile corporate earnings amidst the looming fear of a recession, like a storm brewing on the horizon. So far, more than 70 S&P 500 companies have reported fourth-quarter earnings and 65% of them posted stronger-than-expected results, according to Refinitiv. With the bulk of earnings still in front of the market, the question as to whether the shift towards growth signalled by recent rallies is warranted could be answered by upside earnings surprises and solid guidance, like a treasure hunt for the perfect investment.

As the week progresses, several key economic data reports will also be released, including the grand production of gross domestic product figures on Thursday and the personal consumption expenditure (PCE) price index on Friday. The PCE reflects how much consumers pay for products and is one of the Federal Reserve's favourite inflation gauges. It could therefore influence the central bank's next interest rate decision, which is expected to be announced on Feb. 1 after the Fed's next meeting, like a game of monetary policy chess.

Investors have been in a state of anxiety over the Federal Reserve's potential rate hike, pondering whether it will be a minor 25 or a significant 50 basis points as the central bank continues to tackle the ever-present issue of inflation. Many are worried that the current pace of rate hikes may cause the U.S. economy to spiral into a recession, like a delicate balancing act between growth and recession.