The latest warning that a recession may be looming, this time from the social media company
snap
,
sent shares sharply lower on Tuesday.
The Dow outperformed the Nasdaq by 2.5 percentage points. Prior to Tuesday, according to market data from Dow Jones, there have only been 25 trading days since September 2008 when the Dow has outperformed the Nasdaq by at least 2 percentage points.
“Global equities sold off, with Snap Inc. serving as the catalyst with lower sales and earnings forecasts,” wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets.
Late Monday, Snap (Ticker: SNAP) lowered its sales and earnings guidance for the current quarter, citing a deteriorating economy. The parent company of the popular app Snapchat said in a filing with the Securities and Exchange Commission that it is likely to see its revenue and earnings before interest, taxes, depreciation and amortization at the low end of what it was telling investors to expect for the quarter. Because “the macroeconomic environment has deteriorated further and faster than expected,” says the company’s statement.
The company had announced that Ebitda would be between breakeven and $50 million on sales of just over $1.1 billion. With the upper end of this range now unlikely, RBC analysts cut their 2022 Ebitda estimate to $310 million from $692 million and also lowered their 2023 estimates by a similar percentage. The stock closed up 43% at $12.79.
For the rest of the digital advertising and e-commerce space, the [Snap] Read for the Space is broadly negative,” wrote RBC analyst Brad Erickson.
As a matter of fact,
meta platforms
(FB) stock fell 7.6%.
alphabet
(GOOGL) stock fell 5% during
Pinterest
(PINS),
Etsy
(ETSY) and
eBay
(EBAY) fell 23%, 7.7% and 2.2% respectively.
Amazon.com
(AMZN) stock fell 3.2%.
For the rest of the market, there is concern that consumers will spend less. That matches what
goal
(TGT) featured in its earnings report that showed consumers were spending more on essential items and less on discretionary products like clothing and electronics.
Overall, “the market is fearful of declining earnings forecasts from street analysts,” wrote Louis Navellier, founder of Navellier & Associates.
Two main culprits are responsible for the current consumer challenge: inflation and interest rates. Inflation remains stubbornly high as the Russian attack on Ukraine sends commodity prices skyrocketing and companies continue to struggle to produce enough goods to meet still-high economic demand. Central banks around the world are trying to combat this inflation by raising short-term interest rates to slow the economy and curb demand.
Tuesday’s defeat thwarted a major rally of the past few days. The S&P 500 was up 4.3% from Friday afternoon’s low when the index entered bear market territory by Monday’s close. The tech-heavy Nasdaq gained 4.5% over the same period.
Money has flowed into technology stocks. According to Bank of America, retail investors, like those on popular trading apps like Robinhood and TD Ameritrade, made net purchases of $979 million a week in S&P 500 technology stocks and exchange-traded funds last month. That’s more than 20 times the average weekly net inflow for the past three months, a significant improvement over the average week’s net outflow for the past year.
“This latest corporate warning comes just as risk sentiment is trying to find firmer ground,” wrote Fiona Cincotta, senior financial markets analyst City Index. “But actually it tells us that there will be more bad news in the wash, which will inevitably bring more downside.”
Typically, technology stocks can do well in tough times because the innovations they offer allow them to grow quickly. But recent economic headwinds come as growth has slowed, leaving companies more vulnerable to macro shifts.
On the positive side, non-tech stocks slipped rather than sold off. The Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which weights each stock in the index equally and thus tracks the performance of the average stock, fell just 0.6%.
Nonetheless, investors have shifted money into safer investments. The 10-year government bond rose in price, with the yield falling to 2.75%. That’s down from just over 3% in early May, a level not far topped in the post-financial crisis era.
“Government bond yields plummet as risk aversion returns after a gloomy outlook from Snap,” wrote Edward Moya, senior market analyst at Oanda.
Here are some other stocks moving on Tuesday:
zoom video
(ZM) rose 5.6% in late trade after the video conferencing company posted earnings in its first fiscal quarter ended March 30.
best buy
(BBY) rose 1.2% after its sales beat estimates.
Abercrombie & Fitch
(ANF) stock fell 29% after reporting a surprise loss.
Island
(PODD) gained 7.4% on reports it is in talks with
DexCom
(DXCM). DexCom stock lost 8.9%.
Roblox
(RBLX) stock fell 10% after being downgraded to Neutral from Overweight at Atlantic Equities.
AutoZone
(AZO) shares rose 5.8% after the company reported earnings of 29 cents a share, beating estimates of 26 cents a share on revenue of $3.9 billion, beating expectations of $3.7 billion.
Write to Joe Woelfel at [email protected] and Jacob Sonenshine at [email protected]
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