Late Earnings Sink Tech After Stocks Close Higher: Markets Wrap

(Bloomberg) -- A slew of disappointing tech earnings after regular trading ended overshadowed what will go down as the biggest four-day rally for U.S. stocks since November 2020.

Dip buyers who powered the Nasdaq 100 to a 8% rally since Thursday got a gut check in late trading, when the biggest exchange-traded fund that tracks the index lost 1.8% as of 4:25 p.m. in New York. The main culprit was Meta Platforms Inc., which sank more than 20% after the Facebook parent's forecast fell short of estimates. A loss of that much would wipe out about $180 billion in market value from the stock.

Spotify Technology SA also sank almost 20% on its results, while chipmaker Qualcomm Inc. lost 4%. Other tech shares that had been rebounding from a weak January got caught in the downdraft. Tesla Inc. was lower by almost 2% and Cathie Wood's flagship ETF lost nearly 4%.

The poor earnings marked an about-face from 24 hours earlier when Alphabet Inc. and Advanced Micro Devices Inc. delivered strong results that powered stocks higher during Wednesday's cash session.

It's been a volatile start to the year with investors swinging between concerns over Federal Reserve tightening and confidence in the economic recovery. A robust earnings outlook is helping to ease the uncertainty, at least for the moment. However, many dangers, including stubborn inflation, geopolitical risks and pandemic flare-ups still lingers in the background.

“We are seeing writ large the market tug-of-war between the reality of a changing monetary backdrop and what that means for multiples -- and eventually economic growth -- and what's still good earnings growth,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

The latest Fed commentary hinted at a calibrated approach to raising interest rates to fight high inflation, soothing some concerns the economy might take a hit from tighter monetary policy. None of six Fed officials speaking so far this week have backed the idea of a half-point rate increase in March, and the most aggressive, James Bullard, president of the St. Louis Fed, said five hikes -- one more than every quarter -- is “not too bad a bet.” Treasury yields dipped and the dollar was weaker.

“Fed officials backing away from a 50bp hike is important because it suggests the Fed will not aggressively offset a near-term economic rebound,” wrote Dennis DeBusschere, founder of 22V Research. “If true, that would favor a significant reversal in cyclicals, higher real yields, and reopening stock performance.”

ADP data ahead of Friday's jobs report showed employment at U.S. companies contracted in January by the most since the early days of the pandemic with the spike omicron cases. Poor job numbers could urge the Fed to reconsider aggressive rate hikes. However, a dip in employment is not unexpected with government officials warning of the possibility in recent days.

“It was a weak number versus surveys, but not a cause for concern for the Fed in their hiking plans,” said Adam Shakoor, portfolio manager at Columbia Threadneedle Investments. “The Fed has already telegraphed the labor market as tight and near maximum employment at the end of 2021, so we should expect to see some deceleration in these figures play out in 2022.”

For more market analysis, read our MLIV blog.

What to watch this week:

Earnings are due from Amazon, Ford Motor, Meta Platforms, Qualcomm, Spotify
Bank of England, European Central Bank rate decisions, Thursday
Fed Board of Governors confirmation hearing, Thursday
U.S. factory orders, initial jobless claims, durable goods, Thursday
U.S. payrolls report for January, Friday
Winter Olympics kick off in China, Russia's President Vladimir Putin due to attend opening ceremony, Friday

Some of the main moves in markets: