Interactive Investor

Market snapshot: tech index smashed again

4th February 2022 08:15

Richard Hunter from interactive investor

History was made when the stock formerly known as Facebook crashed after bad results. More companies issue updates today in what are unforgiving times, and there's a set of jobs numbers to deal with later, too. Our head of markets makes sense of it all. 

The ongoing fallout from Facebook owner Meta Platforms (NASDAQ:FB) continued, upending the market recovery of the past few sessions.

Meta shares plummeted 26%, equivalent to more than $200 billion of its market capitalisation, which in terms of value was the largest ever single day fall by a US company. Following some earlier disappointment over earnings from PayPal (NASDAQ:PYPL), it is becoming increasingly evident that not only does sentiment remain fragile, but earnings misses are being severely punished.

Against a backdrop of probable rises in interest rates which in itself is traditionally less positive for high growth stocks, much store had been placed on the importance of strong corporate earnings in the fourth quarter in order to steady the investment ship. While there has been generally good progress, there have been a handful of high-profile companies who have either disappointed through the numbers themselves or, equally importantly, through their outlook and guidance comments.

Some relief may spill over into today’s session, as Amazon (NASDAQ:AMZN) made its bid to salvage the situation with a strong report which sent its shares soaring by 17% after the bell. Similarly, Snap (NYSE:SNAP) and Pinterest (NYSE:PINS) were also marked sharply higher.

With attention now turning to the non-farms payroll report due later, the effects of the Omicron variant spilling over to January may be a feature of the numbers. The consensus is for just 150,000 jobs to have been added, following a disappointing 199,000 the previous month, which would confirm the status of near full employment in the US, and would also serve as a reminder that interest rate rises are imminent. Of additional interest this month will be the wage growth number, where job shortages in some sectors may well be driving wage inflation, itself underlining the Federal Reserve’s hardening stance.

In the meantime, the latest plunge leaves the Nasdaq down by 11.3% for the year, with the S&P500 and the Dow Jones also in negative territory by 6% and 3.4% respectively.

Moving in the other direction has been the oil price, bolstered by supply concerns and increasing geopolitical tensions. An emerging winter storm across the US has added to the further threat of supply disruption, pushing the price to stand ahead by almost 18% in the year to date and adding further grist to the inflationary mill.

In the UK, the decision to raise interest rates once more proved briefly positive for sterling, and therefore slightly negative for the blue-chip companies within the premier index where earnings are for the majority internationally focused. Even so, underpinned by its exposure to the better performing oil and banking sectors, and with a sprinkling of shares which could prove invaluable given their pricing power as a defence against inflation, the FTSE100 has added 2.8% in the year to date.

While the UK has tended to be overlooked in recent years by international investors who have been chasing explosive growth, the current levels of caution are tempting some investors to consider the index anew. Valuations remain undemanding as measured against many of its global peers, while the maturity and stability of many blue-chip constituents could offer further investor comfort.

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