Recession fears, alongside a pointed warnings on social media ad spending, has stocks trading mixed heading into the Friday open.
U.S. equity futures pointed to a mixed open on Wall Street Friday, while bond yields slumped firmly lower, as investors picked through a disappointing quarterly earnings report from message app maker Snap Inc., its ripple-effect on social media stocks and the ongoing uncertainty linked to global economic growth.
Snap, which makes the popular Snapchat messaging app, posted its slowest revenue growth rate on record late Thursday and cautioned that companies are pulling back sharply on ad spending amid the global slowdown.
Snap added the current quarter revenues are essentially flat, citing the broader macro slowdown and the impact of Apple Inc.’s (AAPL) – Get Apple Inc. Report privacy changes, which prevent user tracking, on its ad business.
The warning trimmed hundreds of millions in value from social media stocks, including big tech giants Google (GOOGL) – Get Alphabet Inc. Report and Meta Platforms (META) – Get Meta Platforms Inc. Report, while reminding investors of the challenges that continue to face most companies over the second half of the yeas supply chains remain tangled, input costs continue to surge and demand begin to wane.
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Underscoring that concern this morning was data from Europe showing that overall economic activity likely contracted in the month of July as inflation surged to a record high 8.6% and sentiment was pounded by both the ongoing war in Ukraine and political turmoil in Italy.
S&P Global’s flash Composite PMI survey fell to 49.4 over the month — below the 50 point mark that typically separates growth from contraction — setting up the possibility of recession in the world’s biggest economic bloc as the European Central Bank signals more interest rate hikes to come following the first increase in its benchmark refinancing rate in more than a decade yesterday.
“The euro zone economy looks set to contract in the third quarter as business activity slipped into decline in July and forward-looking indicators hint at worse to come in the months ahead,” said S&P Global’s chief economist Chris Williamson.
Recession concerns are evident in the U.S., as well, where the Treasury yield curve remains deeply inverted, as bond prices continue to rise in defensive trading and 2-year notes falling hard, to 2.997%, while 10-year notes were pegged at 2.803% in early New York dealing.
Bank of America’s closely-tracked Flow Show report, in fact, indicates that cash is flowing into bond markets at nearly twice the rate of stocks, with fixed income portfolios adding $8.2 billion this week.
The CME Group’s FedWatch, meanwhile, continues to suggest a firm 75 basis point rate hike from the Fed next week, with around a 22.5% chance of a 100 basis point increase following the bigger-than-expected ECB rate decision on Thursday.
Stocks are holding their ground this morning, however, with Europe’s Stoxx 600 rising 0.42% in early Frankfurt trading, following on from a modestly positive session in Asia and a seven-day rally for the Nikkei 225 in Tokyo that lifted the benchmark to a six-week high
On Wall Street, futures tied to the S&P 500 are indicating a 3 point opening bell dip while those liked to the Dow Jones Industrial Average are priced for a 70 point move to the upside thanks in part to a big pre-market gain for American Express (AXP) – Get American Express Company Report.
Amex rose 4.5% after it posted better-than-expected second quarter earning s, while boosting its full-year revenue growth forecast, as a rebound in business and leisure travel trigged record cardmember spending.
Futures linked to the Nasdaq are indicating a 30 point decline as tech stocks take a hit from Snap shares, the the biggest pre-market mover, as they fell 30% to potentially wipe more than $8 billion in market value from the front-leading social media group.
Google parent Alphabet shares were marked 2.7% lower at $111.30 while Meta Platforms fell 4.7% to $174.50, extending the stock’s year-to-date decline to around 48.1%.
Twitter (TWTR) – Get Twitter Inc. Report shares were also heading south, falling 2.6% after it posted a surprise second quarter loss that it linked in part to the uncertainly linked to Elon Musk’s disputed $44 billion takeover.
Verizon Communications (VZ) – Get Verizon Communications Inc. Report shares were also lower, falling 4.5% after it posted weaker-than-expected second quarter earnings, while trimming its full-year profit forecast, as price hikes look to have slowed wireless subscriber growth.
