U.S. equity futures drop as Mega-Tech disappoint
After a four-day winning streak, the rally in equity markets paused on Thursday as Facebook owner - Meta Platforms plunged by more than 20% following a miss in earnings and provided a weaker than anticipated forecast. Twitter, Pinterest, and Spotify are some of the familiar names that also received a significant hit after reporting poor results after trading hours on Wednesday.
Investors already had significant concerns about how the rising interest rates environment would impact valuations in the tech sector. Now with signs of decelerating revenue and new users for some of the big tech firms, there’s another factor that investors need to worry about. Given the mixed earnings results received so far, expect volatility to remain elevated for the days and weeks to come.
Long-term investors may begin searching for bargains as valuations become more reasonable. Still, another 10% drop in the overall market cannot be ruled out given the ongoing uncertainties on several fronts, including decelerating economic growth, tighter monetary policies, and geopolitical risks.
Interest rates decisions from the European Central Bank and Bank of England later today will further highlight how policymakers perceived the latest inflation numbers. Markets have fully priced a 25-basis point rate hike from the BoE, but the question remains how ECB’s Chief Christine Lagarde views the most recent new record consumer prices. Lagarde has been very reluctant towards normalizing policy, but there is increasing pressure on her to do so. Any signals towards raising rates this year will provide the Euro with a much-needed boost.
According to ADP, U.S. private payrolls fell for the first time in a year last month as the new coronavirus variant continued to disrupt businesses. The 301,000 drop in payrolls in January came as a surprise as markets expected a 207,000 increase. However, this won’t likely change the Fed’s plans of hiking rates in March as inflation has become the main concern, and the job market is likely to recover as the Omicron variant fades. Today’s ISM Services PMI and tomorrow’s official jobs report will provide more clues on how the U.S. economy fared in the first month of 2022.