Tech crisis cuts off part of Wall Street’s winning week – Daily Freeman
By STAN CHOE
NEW YORK (AP) — Stocks tumbled on Friday, giving back some of their gains from earlier in the week as worries grew about the global economy and the earnings outlook for big internet companies.
The S&P 500 fell 0.9% to snap a three-day rally that had taken Wall Street to its highest level in six weeks. The Nasdaq composite led the market lower with a 1.9% drop following worse-than-expected earnings reports from Snap, Seagate Technology and other tech-focused companies.
The Dow Jones Industrial Average held up better, slipping 0.4% more modestly. This was largely because the constituent of American Express gave an encouraging earnings report and said its cardholders were spending more.
Sandwiched between last week’s discouraging inflation report and next week’s Federal Reserve decision on interest rates, the S&P 500 still delivered its best week in a month after a series of corporate earnings reports mostly better than expected. Falling yields in the bond market also helped, easing pressure on equities after expectations of Fed rate hikes pushed yields higher for much of this year.
On Friday, the two-year Treasury yield fell again, to 2.98% from 3.09% on Thursday evening and from 3.14% a week ago, on worries about the economy. A report released Friday morning said business activity in the United States could contract for the first time in nearly two years, with service industries particularly weak.
“Manufacturing has stalled and the rebound in the service sector from the pandemic has reversed as the tailwind of pent-up demand has been overcome by the rising cost of living, rising interest rates and the growing gloomy economic outlook,” Chris Williamson, chief economist at S&P Global Market Intelligence, said in a statement accompanying the survey data.
Similar reports earlier in the morning also suggested weakness in Europe, underscoring the fragility of the global economy as central banks raise interest rates to spur inflation. Higher rates make economic conditions more difficult and overly aggressive hikes could trigger a recession.
Friday’s reports are the latest to show parts of the economy slowing more than expected. While this raises the threat of a recession, it also causes traders to push back their expectations for aggressive Federal Reserve action next week. Instead of a full percentage point, traders now view a rate hike of 0.75 percentage points as the most likely outcome.
The 10-year Treasury yield fell to 2.76% from 2.91% on Thursday evening.
In the stock market, the company behind the Snapchat app fell 39.1% after reporting a worse loss and lower spring revenue than Wall Street forecasts.
Snap’s weakness could mean pressure on other companies that depend on internet advertising, which are also among the most influential stocks on Wall Street. The parent companies of Facebook and Google are due to release their earnings next week. The pair fell 7.6% and 5.6% respectively on Friday, representing two of the heaviest weightings in the S&P 500.
The S&P 500 lost 37.32 points to close at 3,961.63. The Dow fell from 137.61 to 31,899.29 and the Nasdaq from 225.50 to 11,834.11.
Adding to the tech pain, data storage company Seagate Technology lost 8.1%. It said anti-COVID measures in Asia and slowing global economic conditions in the last quarter affected its results, which were lower than expected.
Verizon fell 6.7% after its profit fell short of expectations, although its revenue beat expectations. It also cut its profit forecast this year.
On the winning side was American Express, which rose 1.9% after posting a better-than-expected spring profit for the spring. He said customers were spending more on travel and entertainment in April than before the pandemic, the first time it had happened.
The encouraging data reinforced some recent comments from CEOs of major banks, who said their clients appeared to be in good financial shape despite all the worries about inflation and the economy.
Despite Friday’s declines for Wall Street, the S&P 500 still rose 2.5% for the week.
Besides the easing in Treasury yields during the week, lower prices for crude oil and other commodities also provided some relief on the inflation front. They come on top of some signals suggesting inflation may be on the verge of peaking, such as easing inflation expectations in the coming years, said Nate Thooft, senior portfolio manager at Wealth Management. Manulife Investments.
“Inflation is the most important thing,” he said. “It’s not earnings, it’s not the Fed, it’s not interest rates themselves. This is the uncertainty of inflation.
“For me, as soon as you see real evidence that inflation is stabilizing and improving, all the other things become less of a problem as well,” he said. The war in “Ukraine is separate and isolated, but all the others are linked, and the epicenter is inflation”.
AP Business Writer Elaine Kurtenbach contributed.