Nasdaq Surpasses as Investors Cheer on Microsoft, Dow Transports Sink

April 26 (Reuters) – The tech-heavy Nasdaq closed slightly higher on Wednesday after strong results from Microsoft Corp ( MSFT.O ) boosted technology shares, but the S&P 500 and Dow fell on lingering worries about a weakened U.S. economy and banking sector.

Economically sensitive transport shares had their weakest day in 11 months, and banking shares fell as regional bank First Republic hit a record low. Investors have been nervous about the banking sector since the recent failure of two US banks.

Microsoft shares rose 7.2% after positive quarterly results and sales, including robust artificial intelligence products. The results boosted shares of companies such as cloud computing rival Amazon.com Inc , up 2.3%; data analysis company Datadog ( DDOG.O ), up 10.5%; and cloud computing giant Snowflake Inc ( SNOW.N ), which closed up 8.5%.

Alphabet Inc ( GOOGL.O ) reported better-than-expected first-quarter results and a $70 billion buyback plan, but shares closed down 0.1%.

“The market is looking for direction on where the economy and companies are going. We’ve had some good earnings reports, but investors are realizing that’s not enough to clarify the way forward,” said Lisa Erickson, head of public markets at US Bank Wealth Management in Minneapolis.

Investors are awaiting more earnings reports and a key inflation reading on Friday, as well as the Federal Reserve meeting next week, Erickson said.

The Dow Jones Industrial Average (.DJI) fell 228.96 points, or 0.68%, to 33,301.87; and the S&P 500 (.SPX) lost 15.64 points, or 0.38%, to 4,055.99. The Nasdaq Composite (.IXIC) closed up 0.47%, or 55.19 points, at 11,854.35, according to Nasdaq.com.

The S&P 500 technology index (.SPLRCT) was the lone gainer among the benchmark’s 11 major industrial sectors, adding 1.7%. At today’s peak, it rose 2.8%.

But the Dow Transports average (.DJT) fell 3.6%, posting its biggest two-day decline since May 2022. The index was hurt by economic turmoil after Wednesday’s weaker-than-expected capital goods data and Tuesday’s weak United Parcel Service (UPS ) .N) results.

New orders for key U.S.-made capital goods fell more than expected in March and shipments fell, suggesting that business spending on equipment likely remained a drag on economic growth in the first quarter.

Still, earnings forecasts looked much more upbeat after Tuesday night’s bullish reports, with analysts now expecting a 3.2% decline in first-quarter earnings for S&P 500 companies compared with expectations for a 3.9% decline just a day ago.

Of the 163 S&P 500 companies that reported first-quarter profits through Wednesday morning, 79.8% topped analysts’ expectations, according to Refinitiv IBES data. In a typical quarter, 66% of companies beat estimates.

However, shares of regional lender First Republic Bank ( FRC.N ) sank 29.8%, hitting a new record low for the second straight day. That helped push the S&P 500 banking index (.SPXBK) down 1.4% on the day.

Investors were worried by a morning report that the US government was unwilling to engineer the bailout, after the lender reported plummeting deposits earlier this week.

U.S. banking regulators also weighed the prospect of downgrading their private ratings of First Republic, which could dampen Fed borrowing, Bloomberg News reported. The bank’s shares have fallen 96.1% so far this year.

However, shares of PacWest Bancorp ( PACW.O ), another regional bank, rose 7.5% as it beat first-quarter profit estimates and stabilized deposit outflows.

Facebook parent Meta Platforms Inc ( META.O ) rose around 10% after it clocked in a second-quarter revenue forecast that beat analysts’ expectations as the digital ad market shifted to tried-and-true platforms like Facebook and Instagram.

Activision Blizzard ( ATVI.O ) fell 11.4% after Britain’s competition regulator blocked Microsoft’s takeover of Microsoft over antitrust concerns.

Declining issues outpaced advances on the NYSE by a ratio of 2.07 to 1. The S&P 500 posted five new 52-week highs and 11 new lows.

On US exchanges, 11.06 billion shares changed hands compared to the average of 10.4 billion for the past 20 sessions.

Reporting by Sruthi Shankar in Bengaluru Editing by Vinay DwivediS

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