Markets surge on positive earnings from tech firms and Fed move to hold rates

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Wall Street breathed a sigh of relief after Microsoft and Facebook reported positive earnings on Wednesday, while the Federal Reserve’s decision to keep US interest rates the same added to optimism that a slowdown in the global economy may not be as sharp as economists have feared.

While the market reacted positively, Microsoft’s results initially disappointed investors, with revenue coming in at $32.47bn, slightly lower than the $32.51bn expected by analysts, causing shares in the Seattle giant to fall 3%.

Its CEO, Satya Nadella, put a positive spin on the results, saying the company’s strong commercial cloud results, up 76%, reflect the company’s “deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare”.

That came as the Fed said at the end of a two-day meeting of its policymaking committee that economic growth remained “solid” and that it expected growth to continue.

In an apparent turnaround, the US central bank did not say it expected to keep raising interest rates, as it has in statements since 2015. “The case for raising rates has weakened somewhat,” said the Fed chairman, Jerome Powell.

Following other positive earnings reports over the past two days, the markets surged, with the Dow Jones Industrial Average rising 435 points, or 1.8%, to 25,015. The S&P 500 added 1.6%. Both gauges have wobbled lately but are up about 7% in January. The tech-heavy Nasdaq Composite rose 2.2%.

The results come at a crucial time for the financial markets as earnings season reaches its peak alongside the decision on interest rates and the beginning of US-China trade talks in Washington, ahead of which trade officials have expressed cautious optimism.

Facebook, meanwhile, recorded strong growth in advertising revenue and on earnings per user. The company said that while user growth had slowed, 1.52 billion members logged in daily.

The company reported earnings of $2.38 per share, compared with $2.19 forecast. Shares rose more than 7% in extended trading.

Despite better-than-expected sales and a quarterly profit, the electric carmaker Tesla quarterly earnings missed analysts’ expectations, reporting $1.93 per share against $2.20 per share forecast. The company’s shares, which rose 3.8% during the trading day, fell 2.5% in aftermarkets trading.

Calling it the “most challenging year in Tesla’s history”, the company’s CEO, Elon Musk, told investors that he thought it was also the electric car startup’s most successful. But the quarter that ended in December covered a rough time for the company, during which Musk described a near-death decline over its Model 3 “production hell”.

Revenue was reported at $7.23bn but earnings failed to meet market expectations, which sent the stock sliding in after-hours trading Wednesday afternoon after dropping 11% over the past year. The company has struggled through the start of the year and cut 7% of its workforce this month, the second mass layoff in the past seven months.

Still, Musk emphasized Tesla’s successes, saying he was optimistic the company would see profits continue next year – though “not by a lot” – and highlighted that the company holds 80% market share in the electric car industry. He attempted to address concerns by telling analysts and investors that the company has been getting “way better about the way we spend money” and increasing its financial discipline in order to reduce costs. “It is what allows us to lower the price,” he said, explaining that the company hopes to make its cars more affordable. “We have to be absolute zealots about this.”

Later in the call Musk said, “We have just been like super dumb in some of the things we have done. But it is going to get way better.”

Production is expected to ramp up in 2019, bringing in higher revenues, and the company is also hoping to streamline service in North America by stocking parts at service centers.

The Fed decision, coupled with Microsoft and Facebook earnings, confirms the optimistic reading after Apple and Boeing beat quarterly earnings forecasts a day earlier, sending relief through world markets put on edge by concerns from US companies over slowing growth in China.

Boeing beat estimates by more than $1 a share, posting a bottom line of $5.48 a share on revenue of $28.34bn. Boeing rose 6.4% on Wednesday.

Apple’s CEO, Tim Cook, told CNBC that there was “a bit more optimism in the air in January” with respect to US-China trade relations, adding that he was “encouraged by the comments coming out of both countries”. Shares in the iPhone maker rose 4.3%.

Still to come as the US wraps up earnings season are General Electric and Amazon, whose results are due on Thursday.

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