The stock-market pendulum swung in the other direction again Tuesday, though how exactly it treated investors' individual portfolios was largely contingent on how much technology and technique exposure they had.
The major catalyst today was last night's announcement by Snap (SNAP) CEO Evan Spiegel that the company would fall well short of its internal current-quarter revenue and earnings estimates. "The macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month," he says.
Snap shares cratered 43.1% in response Tuesday and sent shockwaves throughout the rest of the digital advertising space. Google parent Alphabet (GOOGLE, -5.0%), Facebook parent Meta Platforms (FB, -7.6%) and Amazon.com (AMZN, -3.2%) were all swept up in the selling pressure.
Not only did that spark a flurry of single-stock downgrades from the analyst community, but CFA's Sam Stowell downgraded the entire communication services sector.
A rapid recovery in any area driven by advertising and consumer spending is not expected in the near to intermediate term," he says. "What's more, increased regulatory risk directed toward the larger information technology companies will also likely add pressure.
Also, Tuesday, S&P flash U.S. Composite PMI Output Index, which reflects both manufacturing and services activity, fell to 53.8 in May from 56.0 in April – still expansion, but at a slower rate than last month, amid weaker demand growth and heightened inflationary pressures, among other factors.
And new single-family home sales plunged 16.6% month-over-month to a 591,000 annual rate in April as increases in housing prices and mortgage rates put the brakes on home buying.
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Distress in the communication services (-3.6%) and technology (-1.5%) sectors weighed most heavily on the Nasdaq Composite, which dropped 2.4% to 11,264 and is now down roughly 30% from its Nov. 19, 2021, high. The S&P 500 was off a more modest 0.8% to 3,941, while the Dow Jones Industrial Average managed to wrangle a 0.2% gain, to 31,928, out of Tuesday's mess.
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Obviously markets are fragile, distressed, and volatile, but with the Nasdaq down much more than the broader markets, clearly not all downside is the same thing," says David Hansen, chief investment officer with wealth management firm The Hansen Group. "The 'shiny objects' of the market – particularly tech stocks that thrived during the pandemic but have no underlying business model – have been most vulnerable, and that vulnerability will continue.
Stock chart for 052422
Charts
Other news in the stock market today:
The small-cap Russell 2000 slumped by 1.6% to 1,764.
U.S. crude oil futures slipped 0.5% to end at $109.77 per barrel.
Gold futures were up for a fourth straight day, gaining 1.0% to $1,865.40 per ounce.
Bitcoin improved by 1.0% to 29,346.91. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
Roblox (RBLX) spiraled 10.0% after Atlantic Equities' analyst Fungal Made downgraded the metaverse stock to Neutral (Hold) and halved the price target to $30 – still a roughly 11% premium to today's close at $26.93. The analyst cited concerns that the bulk of engagement growth is coming from overseas markets that have lower average revenue per user (ARPU), as well as stagnating usage across North America. Made also pointed to unattractive valuations for RBLX based on its gross profit and free cash flow yield.
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