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How Microsoft’s Fiscal 4Q16 Results Led S&P 500 to New Records

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Jul. 26 2016, Updated 3:04 p.m. ET

Microsoft’s fiscal 4Q16 results lift S&P 500 and Dow indexes

Earlier in the series, we discussed Microsoft’s (MSFT) recently announced better-than-expected fiscal 4Q16 results, which were fueled by cloud demand. Increased adoption of Microsoft’s cloud offerings, as evident from their growth in fiscal 4Q16, helped the company to post growth in its respective business segments. Office 365 consumer subscribers rose to 23.1 million in 4Q16.

The market’s renewed optimism towards Microsoft after its fiscal 4Q16 results boosted its stock, which rose ~7% to $56.75. Microsoft’s stock surge boosted the Dow, the S&P 500 (VOO), and the Nasdaq indexes. Since 2000, the S&P tech sector hit its highest level on July 20, 2016, backed by Microsoft’s fiscal 4Q16 results.

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Microsoft’s 4Q16 results reinforced optimism in technology companies’ quarterly earnings, which are expected to witness a 7.2% decline in 2Q16, as the above chart shows. Of all the companies in this sector, Apple (AAPL) is estimated to be the largest contributor to the IT sector’s expected fall in earnings.

Barring the recent surge in selected technology players’ share prices, since the beginning of 2016, leading technology companies like Microsoft, IBM (IBM), Netflix (NFLX), Intel (INTC), and Apple underperformed the S&P 500 Index.

Analysts increase the price target for Microsoft

In regards to Microsoft’s cloud growth and fiscal 4Q16 results, Brad Reback, an analyst at Stifel Nicolaus, stated, “They are effectively getting their customers to transition to the cloud.” Stifel Nicolaus raised its price target on Microsoft’s stock to $60 from $58. BMO Capital Markets also raised its price target for Microsoft to $62 from $57.

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