Tech stocks set to fall after Facebook earnings disappointment

The rally in US stocks looked set to stumble as investors hammered shares of Facebook owner Meta Platforms ahead of market and awaited Amazon.com earnings,

Ford Motor and Snap.

Futures on the technology-focused Nasdaq-100 fell 1.9% on Thursday, signaling that tech stocks would be under pressure. The fall came as investors erased 22% from the stock price of Meta, which painted a gloomy outlook in its earnings report, in premarket trading.

Several other tech stocks also slipped ahead of the opening bell. Spotify technology fell 10% after the company, faced with a star podcaster, refused to release annual guidance. Twitter lost 7%, Nvidia 2.8% and Tesla 2.7%.

Amazon.com and Pinterest,

which are expected to report earnings later Thursday, fell premarket by 3.5% and 9.7%, respectively. One bright spot was T-Mobile US,

whose shares jumped 7.8% premarket after the telecommunications company beat analysts’ earnings forecasts.

On the economic front, initial jobless claims fell to 238,000 in the week of January 29. Demands hit a record high in early December as companies retained more workers amid ongoing labor shortages.

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Broader market gauges were also poised for opening losses. S&P 500 futures fell 0.9%. Contracts for the Dow Jones Industrial Average slipped 0.1%.

If sustained in Thursday’s trading session, the decline would mark a pause in a nascent stock market recovery that got off to a rough start to the year. The S&P 500 rose for four days through Wednesday, posting its biggest four-day percentage gain since November 2020.

Tech stocks such as Meta, formerly known as Facebook, have fueled much of the market’s gains since the pandemic began. Investors are reassessing their outlook as the Federal Reserve paves the way for a series of interest rate hikes this year.

Fund managers are looking to sectors such as energy and banking which they believe will benefit from the economic recovery and rising borrowing costs. But the sheer size of stocks such as Meta increases the risk of losses weighing on the broader market, investors say. The rotation affected hedge funds investing in technology and other fast-growing companies.

“Investors are moving from a near-perfect environment for risky assets to a more normal environment in a short period of time,” said Nicholas Brooks, head of economics and investment research at Intermediate Capital Group..

“Companies that have benefited the most from this dramatic monetary policy easing would be more vulnerable to a sell-off in the event of earnings disappointment.”

Fund managers are looking to sectors they believe will benefit from higher borrowing costs.


Photo:

Allie Joseph/Associated Press

It’s not just the Fed that is looking to tighten monetary policy. The Bank of England continued to raise borrowing costs on Thursday, cutting its key rate from 0.25% to 0.5%. The pound strengthened 0.3% to $1.3624. Yields on 10-year UK government bonds rose on the bank’s decision, as did yields on equivalent US debt. The yield on benchmark Treasuries climbed to 1.802% from 1.765% on Wednesday.

The European Central Bank maintained its key interest rates and said it would keep them there until inflation was sustainably at its target. The euro weakened 0.2% to $1.1285.

Foreign stock markets were down overall. The Stoxx Europe 600 lost 0.5%, led by losses in industrials and technology stocks. London’s FTSE 100 fell 0.2%. In Asia, Japan’s Nikkei 225 fell 1.1% as Chinese markets were closed for a public holiday.

Facebook tumbled after releasing its first earnings report since chief executive Mark Zuckerberg outlined a pivot to the metaverse. The company said it expects revenue growth to slow as users spend less time on its more lucrative services.

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“I think it was a bit more of a wake-up call to the market that some of these stocks can’t follow this trajectory,” said Altaf Kassam, head of investment strategy and research for the Europe, the Middle East and Africa. at State Street Global Advisors.

Facebook’s move follows a 22% drop in Netflix’s share price when the streaming company reported slowing subscriber growth in late January. PayPal fell 25% on Wednesday after the payments company lowered its earnings outlook.

Write to Joe Wallace at joe.wallace@wsj.com

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