Tech Giants Hit in Late Hours After Meta’s Outlook: Markets Wrap

• Wall Street traders gearing up for GDP report on Thursday
• Yen weakens past key 155 level, adding to intervention risk

Big tech sold off in late hours after Meta Platforms Inc.’s disappointing outlook raised concern on whether the industry that has powered the bull market in equities has run too far.

A $250 billion exchange-traded fund tracking the Nasdaq 100 (ticker: QQQ) got hit after the close of regular trading as the Facebook parent tumbled more than 15%. Meta projected second-quarter sales that were below analyst expectations and increased its spending estimates for the year.

“Meta’s resources are vast, but not infinite,” said Sophie Lund-Yates at Hargreaves Lansdown. “The language around spending plans has become bolder once more, and this could be what’s spooking markets.”

Treasury 10-year yields rose four basis points to 4.64%. The yen weakened beyond 155 per dollar, fueling intervention jitters.

The Facebook parent reported revenue of $36.5 billion in the first quarter, an increase of more than 27% over the same period a year ago. It was a small beat, as analysts were looking for revenue of $36.1 billion on average, according to estimates compiled by Bloomberg. Profit more than doubled to $12.4 billion.

“We encourage investors to focus on the positives,” said Tejas Dessai at Global X ETFs. “The company’s fundamentals continue to show strength, and that’s the key story.”

To Mark Hackett at Nationwide, while the cohort of seven tech megacaps has done well in the last two years because of their superior earnings growth relative to the broader market, this advantage could decrease in 2024 and even more significantly in 2025.

“The ‘Magnificent Seven’ are not nearly as powerful as they once were,” said Hackett. “We see this as a positive development for investors looking to diversify away from the recent market leaders.”

Interest rates staying elevated longer, along with economic uncertainty and geopolitical turmoil have lessened the appeal of some of the stock market’s cheapest strategies.

Investors this month have pulled some $200 million out of value based exchange-traded funds, according to data compiled by Bloomberg Intelligence. In contrast, growth stocks have attracted more than $3 billion in inflows — despite a shaky stock market that’s raised concerns of more downside to come. That diminished interest in cheap stocks comes on the heels of lackluster performances of common value products.

Meantime, a JPMorgan Chase & Co. indicator is flashing a resounding buy signal in US stocks, after it hit a threshold that typically precedes better-than-average gains.

The bank’s US Tactical Positioning Monitor hit a level that reflects an “attractive set-up” for the S&P 500, according to a team led by Andrew Tyler, JPMorgan’s head of US market intelligence.

The stock gauge has historically gained around 3% in the subsequent 20 days after a similar four-week change in positioning, compared to a roughly 1% gain in all periods, according to the note.

Investors Are Pouring More Money Into Growth Compared to Value

The difference between growth and value intakes hit largest in a year

Investors absorbed a $70 billion sale of five-year Treasuries on Wednesday at a slightly higher-than-anticipated yield, following an even-stronger show of demand for the auction of two-year notes on Tuesday.

Another $44 billion of issuance is due on Thursday, with the sale of of seven-year notes. While appetite has been resilient, investors may be less receptive to buying longer-dated securities just days before the Treasury unveils its quarterly refunding announcement and the Fed meets.

For weeks, traders have been scaling back how many rate cuts they expect from the Fed amid a string of resilient economic data. Economists surveyed by Bloomberg predict gross domestic product likely cooled to around 2.5% in the first quarter, with the figures still potentially suggesting persistent inflationary pressures.

“Tomorrow’s pivotal GDP report comes as market participants hope for a soft number that would lead to rate cuts sooner rather than later,” said Jose Torres at Interactive Brokers. “We expect a stronger-than-projected figure. It would be great for revenue growth prospects, but bad for the timing and extent of rate cuts.”

Corporate Highlights:

• International Business Machines Corp. posted earnings that disappointed investors as the company’s consulting unit continues to see weak demand. It also announced the acquisition of software firm HashiCorp Inc.
• Ford Motor Co., rapidly retooling its electric vehicle strategy in a decelerating market for plug-ins, posted first-quarter results that beat expectations on strong sales of work trucks.
• Chipotle Mexican Grill Inc. lifted its full-year outlook as limited-time offers such as chicken al pastor helped boost demand, continuing a streak of positive results as other chains struggle to boost diner traffic.
• Boeing Co. Chief Executive Officer Dave Calhoun said the embattled planemaker is making progress toward turning around its manufacturing and that it will hit its mid-decade cash-flow goal, even after reporting a major outflow in the first three months of the year it slows output.
  BHP Group Ltd. is considering a potential takeover of Anglo American Plc, people with knowledge of the matter said, in what would rank as one of the year’s biggest deals.
• Amazon.com Inc. and Microsoft Corp.’s investments into artificial intelligence startups will get deeper scrutiny from the UK’s antitrust watchdog.

Key events this week:

• US GDP, wholesale inventories, initial jobless claims,
  Thursday
• Microsoft, Alphabet, Airbus earnings, Thursday
• Japan rate decision, Tokyo CPI, inflation and GDP forecasts,
  Friday
• US personal income and spending, PCE deflator, University of
  Michigan consumer sentiment, Friday
• Exxon Mobil, Chevron earnings, Friday

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 rose 0.3%
• The Dow Jones Industrial Average fell 0.1%
• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was unchanged at $1.0701
• The British pound rose 0.1% to $1.2464
• The Japanese yen fell 0.3% to 155.30 per dollar

Cryptocurrencies

• Bitcoin fell 3.6% to $63,938.36
• Ether fell 2.4% to $3,133.35

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.64%
• Germany’s 10-year yield advanced nine basis points to 2.59%
• Britain’s 10-year yield advanced nine basis points to 4.33%

Commodities

• West Texas Intermediate crude fell 0.5% to $82.93 a barrel
• Spot gold fell 0.1% to $2,319.55 an ounce