Major U.S. stock indexes tumbled on Thursday, dragged down by technology and social-media companies, as
owner Meta Platforms plunged after a disappointing earnings report.
The tech-focused Nasdaq Composite Index was down 2.7% in afternoon trading. The broader S&P 500 fell 1.8%, while the Dow Jones Industrial Average declined about 1%.
Meta’s stock price dropped 26% after the social-media giant startled investors with a sharper-than-expected decline in profit and a gloomy outlook. Other social-media companies sold off in its wake.
and
which are due to report earnings later Thursday, slid 22% and 8.9%, respectively.
fell 5.8%.
Several other tech stocks also slumped. Spotify Technology fell 17% after the company declined to issue annual guidance, spooking investors.
—which is also scheduled to report earnings later Thursday—dropped nearly 7%. Chip maker
fell 3.5%.
Thursday’s tumble erased gains in the Nasdaq this week and threatened to resume a selloff that battered U.S. stocks during the first few weeks of the year. As the Federal Reserve has moved toward raising interest rates to combat inflation, investors have fled risky assets such as tech stocks, which had benefited from the low-rates environment. The Nasdaq is down more than 10% so far this year, while the S&P 500 is down more than 5%.
Money managers are pivoting toward sectors including energy and banking they say stand to benefit from the economic recovery and higher borrowing costs.
“Investors are going in a short space of time from almost a perfect environment for risk assets to a more normal environment,” said
Nicholas Brooks,
head of economic and investment research at
“Companies that benefited most from that dramatic easing in monetary policy would be more vulnerable to large selloffs if there are any disappointment in their earnings.”
Markets were also rattled by an increasingly hawkish tone from global central banks. The Bank of England pressed ahead with raising borrowing costs Thursday, nudging up its policy rate to 0.5% from 0.25%. In Frankfurt, the European Central Bank kept its key interest rates unchanged, but ECB President
Christine Lagarde
signaled concern about inflation and opened the door to a possible rate hike later this year.
The euro jumped on her remarks, strengthening 1.2% against the dollar to $1.1445, while European government bond yields jumped. The pan-continental Stoxx Europe 600 slid 1.8%, its worst day in more than a month.
The news from overseas contributed to Thursday’s selloff in U.S. stocks, said
Chris Senyek,
chief investment strategist at Wolfe Research. “Global yields are pushing higher, which is putting downward pressure on valuations across the market,” he said.
Rising interest rates hurt the share price of fast-growing tech companies by reducing the value that investors place on their future earnings. Markets have been volatile in recent weeks as expectations have mounted that the Fed will act aggressively to hike rates, while corporate earnings reports from Big Tech have been hit-or-miss.
and
both posted strong quarterly results last week, boosting investor sentiment. But Meta, previously known as Facebook, fell sharply after posting its first earnings report since Chief Executive
outlined a pivot to the metaverse. The company said it expected revenue growth to slow because users were spending less time on its more lucrative services.
slumped 25% on Wednesday after the payments company lowered its profit outlook. Its shares continued to fall on Thursday, declining 5.2%.
“I think it was a bit more of a wake-up call for the market that some of these stocks can’t keep up on this trajectory,” said
Altaf Kassam,
head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.
One bright spot on Thursday was
whose shares jumped nearly 10% after the telecommunications company topped analysts’ profit forecasts. Despite that, the S&P 500’s communications-services sector shed 5.8%, making it the index’s worst-performing sector, as it was pulled down by Meta and Twitter.
Money managers are pivoting toward sectors they say stand to benefit from higher borrowing costs.
Photo:
Allie Joseph/Associated Press
On the economic front, initial claims for jobless benefits fell to 238,000 in the week through Jan. 29. Claims hit a record low in early December as businesses held on to more workers amid a persistent labor shortage.
In the bond market, the yield on benchmark Treasury notes climbed to 1.834% from 1.765% on Wednesday. Bond yields move in the opposite direction from prices.
In Asia, Japan’s Nikkei 225 fell 1.1%. Chinese markets were closed for a public holiday.
Write to Joe Wallace at joe.wallace@wsj.com and Alexander Osipovich at alexander.osipovich@wsj.com
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