Stocks fell on Wall Street Thursday as Facebook parent company Meta plunged 26%, erasing more than $220 billion in market value, the largest drop in history.
Meta’s lofty stock price, as with several other big communications and technology companies, has an outsize influence on markets because of the company’s huge size. That means a big swing in either direction for such a company can do much to sink or lift the broader market.
The S&P 500 index fell 1.7% as of 1:06 p.m. Eastern and the tech-heavy Nasdaq fell 2.6%. The Dow Jones Industrial Average fell 335 points, or 1%, to 35,291.
Meta sank after forecasting revenue well below analysts’ expectations for the current quarter, a disappointment for a company that investors have become accustomed to delivering spectacular growth. It also reported a rare decline in profit due to a sharp increase in expenses as it invests in transforming itself into a virtual reality-based company.
The steep drop weighed on fellow social media company Twitter, which shed 6%. Snapchat’s parent company Snap sank 22.2% and Pinterest lost 9.5%.
“There’s a general sense that what’s been moving the market higher is not going to take us to the next level,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “The question is where is the next growth engine coming from.”
Communications and technology stocks had some of the biggest losses. The sectors have been behind much of the choppiness in markets since the beginning of the year as investors shift money in expectation of rising interest rates. Higher rates make shares in high-flying tech companies and other expensive growth stocks relatively less attractive to investors.
Bond yields rose sharply on Thursday. The yield on the 10-year Treasury note, which is used as a benchmark to set interest rates on mortgages and many other kinds of loans, rose to 1.83% from 1.76% late Wednesday.
Wall Street anticipates the Federal Reserve’s first interest rate hike to come in March and is cautiously watching for how the central bank paces future increases to help fight rising inflation.
“It’s not a perfect path, it’ll be bumpy, but the direction is pretty clear,” said Guy LeBas, chief fixed income strategist at Janney Capital Management.
Inflation will likely persist until supply chains loosen and help ease costs for businesses, while lowering prices for consumers. Still, the Fed needs to convince people that it is taking steps to fight rising inflation.
“The idea is that raising short-term rates reduces the perception that inflation will be higher in the future,” LeBas said. “If the Fed successfully pulls this off then expectations won’t rise.”
Investors also have their eyes on monetary policy updates in Europe. The Bank of England raised interest rates for the second time in three months on Thursday, putting the United Kingdom far ahead of the rest of Europe and the U.S. in moving to tame surging inflation that is squeezing consumers and businesses.
In contrast, the European Central Bank doesn’t plan to raise rates until 2023 despite record inflation, blaming it on temporary factors. But it has decided the economic recovery is strong enough to start carefully dialing back some of its stimulus efforts over the next year.
Spotify slumped 17.2% after the leading music-streaming service gave investors a weak forecast for a closely watched measure of its earnings. The company has come under pressure after Neil Young pulled his music from its platform to protest the spreading of COVID-19 misinformation by Spotify’s star podcaster, Joe Rogan. Other musicians have followed.
The losses on Wall Street threaten to end a run of solid daily gains for the major indexes this week, though they are still on track for weekly gains.
Investors had several earnings reports to review, with mixed outcomes for stocks. Wireless carrier T-Mobile rose 10.3% after reporting strong results. Health insurer Humana rose 5.7% and upscale clothing company Ralph Lauren rose 4.5% after also reporting encouraging financial results.
The slump for stocks was broad. Retailers, industrial companies and energy companies also fell. Household and personal goods makers eked out gains.
Investors are also preparing for the latest update on the recovering jobs market. The Labor Department will release its monthly report for January on Friday.
(AP)
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One Response
Stocks are way way over valued and should fall. They were over valued prior to the onset of Covid and now have risen to almost double what they were at that time. Corporations are not making double what they were making then.
One reason that the market is so high is that people are buying into it because interest rates from banks and bonds are close to zero and people are looking for a way to do better. That may have caused the rise in the market, but doesn’t justify it. In other words, there isn’t the undelying value to these stocks that would justify today’s stock market prices.