By DAMIAN J. TROIS and ALEX VEIGA
A historic drop in the stock price of Facebook’s parent company helped send other tech stocks tumbling on Wall Street on Thursday, abruptly ending a four-day winning streak for the market.
The 26.4% wipeout of meta platforms, as the owner of Facebook is now known, wiped out more than $230 billion in market value, by far the biggest one-day loss in history for a company American. Shares of other social media companies, including Twitter and Snap, also fell.
Because Meta is highly valued, a large swing in its stock price can also cause broader stock indices to fall or rise. The S&P 500 fell 2.4%, its biggest decline in nearly a year. The tech-focused Nasdaq composite fell 3.7%, its biggest loss since September 2020. The Dow Jones Industrial Average, which doesn’t include meta platforms, fell 1.5%.
Meta sank after forecasting revenue well below analysts’ expectations for the current quarter following privacy changes by Apple and increased competition from TikTok. It’s a disappointment for a company that investors have become accustomed to delivering spectacular growth. Meta also reported a rare drop in profits due to a sharp increase in expenses as it invests to transform itself into a virtual reality-based company.
The sharp decline weighed on fellow Twitter, which fell 5.6%. Snapchat’s parent company Snap fell 23.6% and Pinterest 10.3%. Snap soared 54% and Pinterest jumped 28% in aftermarket trading after each reported better-than-expected results. Amazon.com jumped 18% in after-hours trading after posting strong fourth-quarter results despite supply chain issues.
Big tech and communications companies have been instrumental in driving gains for the overall market throughout the pandemic and much of the recovery in 2021, but the market appears to have changed, Brad said. McMillan, Chief Investment Officer for Commonwealth Financial Network.
“There’s a general feeling that what drove the market up isn’t going to take us to the next level,” McMillan said. “The question is, where is the next engine of growth coming from?”
The S&P 500 fell 111.94 points to 4,477.44. The Dow Jones lost 518.17 points to 35,111.16. The Nasdaq slipped 538.73 points to 13,878.82.
Shares of smaller companies also fell. The Russell 2000 Index lost 38.48 points, or 1.9%, to 1,991.03.
Communications and technology stocks recorded some of the largest losses. These sectors have been the source of much of the market volatility since the start of the year, with investors shifting money in anticipation of higher interest rates. Higher rates make stocks of high-flying tech companies and other expensive growth stocks relatively less attractive to investors.
Bond yields rose sharply on Thursday. The yield on the 10-year Treasury note, which serves as a benchmark for setting interest rates on mortgages and many other types of loans, rose to 1.84% from 1.76% on Wednesday evening.
Wall Street is anticipating the Federal Reserve’s first interest rate hike in March and is cautiously watching how the central bank will regulate future hikes to help combat rising inflation.
“It’s not a perfect road, it will be bumpy, but the direction is pretty clear,” said Guy LeBas, chief fixed income strategist at Janney Capital Management.
Inflation will likely persist until supply chains loosen and help reduce costs for businesses, while lowering prices for consumers. Still, the Fed needs to convince people that it is taking action to fight rising inflation.
“The idea is that increasing short-term rates reduces the perception that inflation will be higher in the future,” LeBas said. “If the Fed gets it right, expectations won’t rise.”
In Europe, the Bank of England raised interest rates for the second time in three months, moving faster to control inflation than the Fed and the European Central Bank. Meanwhile, the head of the ECB said record inflation could persist “longer than expected” and appeared to open the door ever so slightly for a rate hike this year. Stock markets in Europe fell.
Spotify fell 16.8% after the major music streaming service gave investors a weak outlook for a closely watched measure of its earnings. The company has come under pressure after Neil Young removed his music from its platform in protest at the spread of misinformation about COVID-19 by star Spotify podcaster Joe Rogan. Other musicians followed.
Wall Street’s losses threaten to end a streak of strong daily gains for the major indices this week, though they are still on track for weekly gains. Investors have been encouraged by strong earnings reports from companies including Apple, Exxon, UPS and Alphabet, Google’s parent company, over the past few days.
Some earnings reports drew positive reactions on Thursday. Mobile operator T-Mobile rose 10.2% after posting strong results. Health insurer Humana rose 6.2% and high-end clothing company Ralph Lauren rose 3.5% after also reporting encouraging financial results.
But aside from these positives, the fall in equities has been broad. Retailers, industrial companies and energy companies also fell. Manufacturers of household and personal goods made gains.
Investors are also bracing for the latest update on the job market recovery. The Labor Department will release its January monthly report on Friday.