Microsoft and Alphabet’s US$250 billion stock plunge fuels fears of earnings recession

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Shares of Microsoft and Alphabet extended losses Wednesday morning after the technology giants slashed earnings forecasts for the rest of this year as a result of the increasingly murky economic outlook—signalling upcoming earnings from giants like Meta and Twitter may also disappoint investors.

Illustration picture shows the Google logo, during a visit to the Google company in Ghlin on the occasion of the 15th anniversary of the Google data centre in Belgium, Friday 21 October 2022. BELGA PHOTO NICOLAS MAETERLINCK (Photo by NICOLAS MAETERLINCK / BELGA MAG / Belga via AFP) (Photo by NICOLAS MAETERLINCK/BELGA MAG/AFP via Getty Images)

The steep stock plunge has wiped billions from the fortunes of some of tech’s richest billionaires. Former Alphabet CEO Larry Page is worth an estimated $84.2 billion Wednesday morning. He’s down about $5.8 billion—making him the day’s biggest billionaire loser, according to Forbes estimates. Fellow cofounder Sergey Brin isn’t far behind. His fortune fell $5.2 billion to $81.1 billion, while the net worth of former Microsoft CEO Steve Ballmer dropped $3.9 billion to $77.4 billion.

This week marks the busiest for earnings season, with 43% of S&P companies slated to report, but 25% of consumer discretionary firms like Walmart aren’t slated to report until mid-November. Bank of America forecasts sentiment could get “incrementally more negative” as the season progresses.

The stock market has been in flux this month after aggressive interest rate hikes this summer pushed major indexes into bear market territory. As signs indicate the Federal Reserve may soon pause the hikes, which work to combat inflation by tempering consumer demand, the S&P 500 has rallied about 8% the past two weeks. However, looming corporate earnings have been a huge source of uncertainty. In a recent note, Morgan Stanley analysts said it’s a “bad idea” to assume the gains will be long-lived because a slew of emerging risks—including economic weakness in Europe, the dollar’s strength and China reopening uncertainty—will likely hamper company earnings in the next two quarters.

“The moment the Fed decides to put out the fire [by pausing interest rate hikes], stocks and other risk assets are likely to rally sharply,” says Morgan Stanley strategist Michael Wilson. “However, trying to play that for more than a tradable bounce is a bad idea… because we still have to deal with the oncoming earnings recession, which is likely to pick up steam this earnings season and next.”

Morgan Stanley projects the S&P will ultimately hit a bear-market low of between 3,000 and 3,400 points—suggesting the index, which is already down 20% this year, could still plummet another 10% to 20%.

This article was first published on forbes.com

Stock Market Poised For Bigger Losses As Economy Enters ‘Danger Zone,’ Morgan Stanley Warns (Forbes)