Big Tech Under Pressure as Meta Sinks on Earnings

The technology sector experienced a significant selloff as disappointing earnings reports pushed the stock market toward its lowest levels since May. Not even a decline in bond yields could rejuvenate the industry that had been a driving force behind this year's equity rally.

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The Nasdaq 100, following its most substantial decline of 2023, fell approximately 1% on Thursday. This decline also brought the S&P 500 closer to a "correction" territory, with the index down over 9% from its peak in July. Meta Platforms Inc., the parent company of Facebook, suffered a sharp drop in its stock price, dashing investors' hopes of a sustained recovery in advertising revenue. United Parcel Service Inc., considered an economic barometer, saw a 5% drop after revising its profit targets downward.

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The so-called "Magnificent Seven" technology companies, which have been at the forefront of this year's stock market rally, have posted disappointing earnings, erasing roughly $200 billion from their collective market value. Alongside Meta, both Alphabet Inc., the owner of Google, and Tesla Inc. also experienced declines in their stock prices after reporting their earnings. The only bright spot in this scenario was Microsoft Corp. Amazon.com Inc. was slated to release its earnings results after the close on Thursday.

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Matt Maley, Chief Market Strategist at Miller Tabak + Co., commented on the situation, stating, "The positive earnings reports from the big-tech stocks that the bulls were hoping for has not come to fruition. It's not out of the question that Amazon and Apple might report better numbers, but that's now unlikely going to be enough to represent the kind of bullish picture for the entire big-cap tech group that the bulls were relying on to help the stock market shake off these other concerns."

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In the realm of fixed income, Treasury yields rebounded across the yield curve as economic data provided further support for the case that the Federal Reserve may pause in its tightening cycle next week. Traders began to bet that the central bank is likely finished with interest rate hikes, causing two-year yields to drop by five basis points to 5.06%. Swap contracts indicated that there was less than a 50% probability of one more Fed interest rate hike in the current tightening cycle. Meanwhile, the euro remained lower as the European Central Bank chose to keep its interest rates unchanged.

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On the economic front, the U.S. economy demonstrated robust growth in the last quarter, marking the fastest pace in nearly two years. This growth was driven by a surge in consumer spending. A key measure of underlying inflation showed a more significant cooling than expected, reaching the slowest pace since 2020. This complex economic landscape and the performance of the technology sector continue to shape the dynamics of the financial markets.

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