Monday market minutes: momentum snapped

The recovering confidence in tech companies on Wall Street ran into a couple of less than successful stories late last week, ending Wall Street’s latest flirtation with sector at just the wrong time.

The terrible performance by Snap and then the less than stellar effort from Twitter raised questions about how this week’s quarterly earnings flood from tech majors can continue the modest recovery on Wall Street (and globally).

Analysts immediately wondered if the figures from Apple, Amazon, Microsoft, Meta (Facebook), Alphabet, Intel, Texas Instruments, Samsun, Sony and Qualcomm would be able to offset the negativity from the Snap and Twitter figures.

On top of this there’s an added complication, the US Federal Reserve meets Tuesday / Wednesday (the end of meeting statement will be released at 4am Thursday, Sydney time) and another 0.75% lift in the federal funds rate is widely expected.

While that expectation is now broadly priced into the market and an increase of that size probably won’t hit confidence, what remains is a renewed lack of certainty about the quality and value of this week’s tech quarterlies and the stories they will tell.

It’s the biggest week of the season with more than a third of the S&P 500 companies reporting and while the figures from big oil – Shell, Chevron, Total and Exxon Mobil will grab the headlines, the really important numbers (for investors) will be revealed by favoured stocks like Apple, Amazon, Alphabet (Google) and Meta (Facebook).

Snap (AKA SnapChat) has been a disaster this year. Snap’s market cap was $US136 billion in September, but after the sudden April downgrading of its revenue outlook a week after the release of the March quarterly and then last week’s very poor June quarter report, the company is now worth just over $US16 billion at Friday’s close (when they slumped another 39% in a single day after the quarterly earnings miss).

Snap’s miss halted last week’s Nasdaq rally with a report that didn’t have one redeeming feature, according to analysts. Co-founder Evan Siegel acknowledged the problem Snap finds itself in with a new employment contract (until 2027) in which he will take pay of just $US1 a year with no equity compensation.

Twitter’s weak revenue and subscriber numbers were revealed Friday with a barb directed at bidder Elon Musk and the destabilising impact of his $US44 billion bid, which Twitter is now suing the Tesla boss to complete.

The revenue line was much weaker than expected, adding to worries about the strength of online advertising and subscriber numbers triggered by the Snap report.

“Snap has managed to snap the uptrend in the Nasdaq by reporting disappointing earnings, which has created a cascading effect on the S&P,” said Sam Stovall, chief investment strategist at CFRA Research said in a note Friday.

“This is just an example of the volatility that investors should expect as earnings are reported, and, therefore, could cause fluctuations in prices in response to better than or worse than results,” Stovall added.

There’s a feeling that tech stocks depending on subscribers or online ads could be doing it tough – Alphabet, Facebook, Amazon and to a lesser extent, Apple.

Analysts pointed out that both Snap and twitter disappointed on subscriber numbers, and while Netflix lost fewer subscribers than forecast, the drop of 970,000 was still the largest quarterly subscriber loss in its history.

But while Twitter’s share rose 0.8% on Friday, shares of Meta Platforms and Pinterest fell about 7.6% and 13.5%, respectively, while Alphabet (Google) lost 5.6%.

The benchmark US Treasury bond yield fell to 2.76% Friday, after weaker business surveys triggered a new warning on the continuing health of economies in Europe and the US (The Australian business activity survey showed activity in July falling to a six-month low).

The US dollar weakened noticeably across the board – especially against the yen and the euro after the European Central Bank lifted rates for the first time in 11 years.

The Aussie dollar was up almost 1.5 US cents, or 2% over the week, ending just under 69.30 US cents early Saturday, Sydney time.

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Before Snap and then Twitter’s reports, investors hoping that some better-than-expected results from tech companies in this week’s slew of big tech reporters would bolster the belief that markets had finally found a bottom.

Snap and Twitter’s figures said ’no’ to that idea and Wall Street sold off at the end of what was one of its better weeks for months.

The Dow lost 137.61 points, or 0.43%, to 31,899.29. The S&P 500 dropped 0.93% to 3,961.63, while Nasdaq shed 1.87% to end 11,834.11.

Those losses cut into weekly gains for all three major averages, with the Dow closing 2% higher. The S&P 500 was up 2.6%, and Nasdaq still managed a solid 3.3%. gain.

That in turn helped send the ASX 200 futures market down by a modest 12 points on Friday night, meaning a soft start to trading later today.

Friday saw a tiny 0.04% slip in the ASX 200 which trimmed the week’s gain for the Australian market to a solid 2.81% – the best week since March.

The June quarter Consumer Price Index on Wednesday and June’s early retail trade data Thursday, will be influences for local investors to grapple with this week.