S&P 500 Reverses 1.0% Lower After Hitting 4K, Snap Sinks 39%

Key Points

• US social media names led a US equity market decline on Friday, with Snap down 38% post-earnings.
• The major indices are still well in the green on the week, with the S&P 500 earlier hitting 4K.
• Investors are looking ahead to big tech earnings, a Fed meeting and US GDP next week.

Stocks Slip on Friday, Led by Social Media Names

Ugly earnings results from Snap and Twitter weighed heavily on US social media names on Friday, with ad revenue-dependent tech giants like Meta Platforms (formerly Facebook) and Alphabet (Google’s parent company) leading a pullback across US equity markets. While Twitter was actually able to reverse pre-market losses, despite a surprise drop in quarterly revenue, Snap share price shed more than a third of its value, with the company missing its revenue targets and declining to provide fresh guidance.

Analysts expect US social media companies to post their slowest ever global revenue growth in Q2, thanks in part to a predictable slowdown after a bumper 2021, but also thanks to the continued rapid growth of their China-based rival TikTok. The big tech-heavy Nasdaq 100 index was thus the underperformer of the major US indices, shedding nearly 2.0% on the day.

The S&P 500, meanwhile, fell back from an early session rally above 4,000 for the first time in over a month and was last down just over 1.0% near 3,950. The Dow, meanwhile, was holding up a little better and nursing losses of closer to 0.5% amid upside in American Express post-earnings.

US Indices Still Poised for Solid Week

Despite the sour end to the week, all three of the major indices look with decent gains. For the most part, the Q2 earnings season which began just over one week ago has been positive. Large-cap companies Tesla and Netflix both beat expectations, along with over 75% of the 106 companies to have reported thus far. Upbeat results from these two helped the large-cap FAANG index hit its highest levels since late-May earlier in the week.

The FAANG index constituents are Facebook (now Meta), Apple, Amazon, Netflix and Google. The index will remain in focus next week, with further earnings from US mega-cap names including Apple, Amazon and Microsoft due. Investors will also be monitoring the macro story next week, with the Fed expected to deliver another 75 bps rate hike and Q2 GDP data expected to show the US economy in contraction for a second successive quarter.

Worse than expected US Services PMI data for July released on Friday, which showed the sector in contraction, bolstered US recession bets, as reflected by a sharp drop in US yields on the day across the curve. 10-year yields hit their lowest since May under 2.8%. Bond market moves reflected a market dialing down its Fed tightening bets for late 2022/2023. If the Fed does sound a little more dovish next week, as markets seem to be betting on, this could spur further upside in the major indices.