US stocks snap gains to fall sharply after downbeat tech earnings

Wall Street equities snapped four days of gains to fall sharply on Thursday after disappointing updates from Facebook owner Meta and other pandemic-era stock market winners ricocheted through the tech sector.

The Nasdaq Composite fell 2.4 per cent as shares in Meta, one of the largest constituents of the tech-heavy index, dropped by a quarter, shedding more than $200 billion (€175 billion) of its value.

Meta overnight reported its first decline in daily active users and warned of increased competition from rivals such as ByteDance's TikTok platform.

The S&P 500 share gauge dropped 1.5 per cent. Wall Street has suffered its worst January since 2009, driven largely by falls in tech stocks that dominate the US indices, and the equity benchmark has lost about 5 per cent this year.

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Shares in PayPal had declined by a quarter on Wednesday after the payments company warned that a weakening ecommerce environment would slow its growth rate. Music streaming platform Spotify also delivered a weak outlook for first-quarter subscriber growth.

Shares in many tech companies rose during the pandemic, fuelled by a combination of coronavirus lockdowns keeping customers at home and ultra-low interest rates increasing the appeal of more speculative investments.

But this year, some traders have started to believe coronavirus is becoming milder and the US central bank has signalled that it is poised to rapidly raise borrowing costs, casting a pall over Wall Street’s tech titans.

"Fingers have been hovering over the sell trigger for the tech sector," said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. "So when you get an announcement like [Meta's], investors see the beginning of the end."

Social media

Shares in Amazon fell 7 per cent on Thursday, but social media companies were hit harder. Snap dropped 20 per cent and Twitter fell almost 6 per cent.

“The spillover is a natural phenomenon in any equity sector, as there are basket trades,” Perdon said. “But we are making the distinction between tech that still has the prospect to deliver and unprofitable tech.”

In Europe, the regional Stoxx 600 share index fell 1.8 per cent, with its tech sub-index dropping 3.5 per cent.

European government debt sold off on Thursday as central bank moves increased nerves about interest rate rises and sustained inflation, which reduce the appeal of the fixed income-paying securities.

The yield on the UK’s benchmark 10-year gilt climbed 0.12 percentage points to 1.38 per cent, representing a significant fall in the price of the debt, after the Bank of England raised interest rates by a quarter point to 0.5 per cent and bumped up its inflation forecast to an April peak of 7.25 per cent.

Germany’s equivalent Bund yield added 0.11 percentage points to 0.14 per cent, after European Central Bank president Christine Lagarde, in a press conference, declined to rule out lifting interest rates this year. Euro-zone inflation hit a record of 5.1 per cent in January.

Ahead of Lagarde’s statement, traders had been concerned that the ECB chief would be overly dovish – prompting fears of the euro-zone rate-setter keeping monetary policy loose for too long then tightening rapidly.

“Markets will [still] focus on the ECB now being behind the curve and start to price in more rate hikes,” said David Zahn, head of European fixed income at Franklin Templeton. – Copyright The Financial Times Limited 2022