What's influencing markets: IBM acquiring HashiCorp, Meta profits, and the impending U.S. GDP
On Thursday, U.S. stock futures fell as investors watched Facebook owner Meta Platforms' (NASDAQ:META) earnings and the impending financial reports from other large technology companies. IBM reports mixed first-quarter earnings and says it will pay $6.4 billion to purchase cloud software company HashiCorp (NASDAQ:HCP). In other news, it is anticipated that the U.S. economy slowed down in the first three months of 2024 but continued to be strong despite high interest rates and ongoing inflationary pressures.
1. Futures nudge lower As investors evaluated the earnings of well-known technology companies and anticipated a new reading on U.S. economic growth, New York stock futures pointed lower on Thursday. At 03:30 ET (07:30 GMT), the Dow futures contract had lost 95 points, or 0.2%, S&P 500 futures had lost 34 points, or 0.7%, and Nasdaq 100 futures had lost 211 points, or 1.2%.
After erratic trading, the major Wall Street indices ended the previous session with mixed results. The tech-heavy Nasdaq Composite increased by 0.1%, while the benchmark S&P 500 gained 0.02%. The Dow Jones Industrial Average, which consists of 30 stocks, fell 0.1%.
In addition to the Meta Platforms results that will be released following the Wednesday closing bell (see below), traders will probably be eager to examine the quarterly financial reports from Google parent Alphabet (NASDAQ:GOOGL) and software behemoth Microsoft (NASDAQ:MSFT) later today. On Thursday, attention will also be focused on first-quarter U.S. gross domestic product figures, which may offer some insight into the state of the largest economy in the world and may influence the Federal Reserve's approach to future monetary policy choices.
2. As CEO Mark Zuckerberg announces plans to spend on AI, Meta shares decline.
The market value of Meta Platforms was erased by more than 15% of its shares over prolonged hours in the United States of America, even though the social media firm reported higher-than-expected revenue in the first three months of 2024.
The company Meta, which also owns the Instagram and WhatsApp app suite, increased its expectation for yearly capital expenditures from $37 billion to $40 billion, citing the need to "accelerate" its ongoing efforts to enhance its artificial intelligence capabilities. Meta expended $28.1 billion last year.
Chief Executive Officer Mark Zuckerberg, who had previously supported stringent cost-cutting measures for a large portion of 2023, stated in a teleconference with analysts that the higher investments were necessary to help Meta become "the leading AI company in the world."
According to Goldman Sachs analysts, "[S]uch a narrative results in a slight reduction in forward revenue trends," in a client note.
After the closing bell on Thursday, when Meta counterparts Microsoft and Alphabet announce their latest returns, spending on AI development is expected to be a major focus as well.
3. IBM shares fall after the news of the HashiCorp deal and mixed earnings.
In addition to disclosing a mixed bag of first-quarter earnings, International Business Machines (NYSE:IBM) revealed it had agreed to pay $6.4 billion to purchase cloud software developer Hashicorp (NASDAQ:HCP).
The technology company exceeded consensus projections of $1.58 by posting earnings per share (EPS) of $1.68. Nevertheless, sales for the quarter fell short of predictions, coming in at $14.46 billion as opposed to $14.51 billion.
In the meantime, IBM announced that it will acquire HashiCorp for $35 in cash per share as the business seeks to capitalize on the surge in demand for cloud software driven by artificial intelligence. The purchase price is 42.6% more than the Monday closing price of HashiCorp's stock.
IBM's stock slightly declined during after-hours trading.
4. Forecasts show that U.S. economic growth slowed in the first quarter.
Expectations are that the robust labor market and robust consumer spending helped the U.S. economy slow down to a still healthy pace in the first quarter.
Despite a period of sticky inflation and high interest rates, the Commerce Department's estimate of the gross domestic product is forecast falling to 2.5% in the first three months of the year from 3.4% in the fourth quarter. This indicates that the U.S. economy is still more robust than that of other advanced economies.
Economists have contended, according to Reuters, that American companies locked in debt refinanced before the tightening cycle, and individuals acted to get lower mortgage payments, helping buffer themselves from increasing rates. Businesses have also been reluctant to let rid of employees because they are afraid of losing workers following a period of labor shortages prior to and following the COVID-19 pandemic.
The GDP figure will be released on Friday ahead of the much awaited personal consumption expenditures index (which does not include food and fuel). It is possible that the Fed may decide later this year to postpone lowering rates from over two-decade highs due to signs of economic strength and persistent pricing pressure.
5. Oil starts to rise.
On Thursday, oil prices marginally increased in European trade as investors processed ambiguous signals from U.S. inventory data and geopolitical unrest in the Middle East.
By 03:29 ET, West Texas Intermediate crude futures increased by 0.1% to $82.92 a barrel, while Brent oil futures ending in June saw a 0.2% increase to $88.16 a barrel.
In the week leading up to April 19, official U.S. inventory data revealed that oil stockpiles decreased by 6.4 million barrels, mainly missing projections for an increase of 1.6 million barrels. However, gasoline inventories decreased by a smaller-than-expected 0.6 million barrels, while distillate stockpiles witnessed an unexpected gain of 1.6 million barrels.
There are still chances that the recent confrontations between Israel and Iran won't turn into a full-scale conflict. Over the past two weeks, both nations have launched strikes against one another, but neither side has indicated that it wants to up the ante on the hostilities.
As a result, some traders have lowered their predictions that the Middle East's oil-rich region's oil supply will be disrupted by the region's escalating geopolitical tensions.
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