Shares fell on Wall Street on Thursday as Facebook’s parent company Meta plunged 26%, wiping out more than $220 billion in market value, the biggest drop in history.
Meta’s high stock price, like that of several other large communications and technology companies, has an outsized influence on the markets due to the enormous size of the company. This means that a large swing back and forth for such a company can do a lot to sink or lift the larger market.
The S&P 500 index fell 1.7% at 1:06 p.m. EST, and the tech-heavy Nasdaq fell 2.6%. The Dow Jones Industrial Average fell 335 points, or 1%, to 35,291.
Meta sank after forecasting revenue well below analysts’ expectations for the current quarter, a disappointment for a company that investors have grown accustomed to delivering spectacular growth. It also reported a rare drop in profits due to a sharp increase in expenses as it invests to transform into a virtual reality-based business.
The sharp decline weighed on fellow Twitter, which lost 6%. Snapchat’s parent company Snap fell 22.2% and Pinterest 9.5%.
“There’s a general feeling that what drove the market higher isn’t going to take us to the next level,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “The question is, where is the next engine of growth coming from?”
Communications and technology stocks recorded some of the largest losses. These sectors have been the source of much of the market volatility since the start of the year, with investors shifting money in anticipation of higher interest rates. Higher rates make stocks of high-flying tech companies and other expensive growth stocks relatively less attractive to investors.
Bond yields rose sharply on Thursday. The yield on the 10-year Treasury note, which serves as a benchmark for setting interest rates on mortgages and many other types of loans, rose to 1.83% from 1.76% on Wednesday evening.
Wall Street is anticipating the Federal Reserve’s first interest rate hike in March and is cautiously watching how the central bank will regulate future hikes to help combat rising inflation.
“It’s not a perfect road, it will be bumpy, but the direction is pretty clear,” said Guy LeBas, chief fixed income strategist at Janney Capital Management.
Inflation will likely persist until supply chains loosen and help reduce costs for businesses, while lowering prices for consumers. Still, the Fed needs to convince people that it is taking action to fight rising inflation.
“The idea is that increasing short-term rates reduces the perception that inflation will be higher in the future,” LeBas said. “If the Fed gets it right, expectations won’t rise.”
Investors also have their eyes on monetary policy updates in Europe. the The Bank of England has raised interest rates for the second time in three months on Thursday, putting the UK well ahead of the rest of Europe and the US in tackling soaring inflation that is weighing on consumers and businesses.
On the other hand, the European Central Bank does not expect to raise rates until 2023 despite record inflation, blaming it on temporary factors. But he decided the economic recovery was strong enough to start carefully winding down some of his stimulus efforts over the next year.
Spotify fell 17.2% after the major music streaming service gave investors a weak outlook for a closely watched measure of its earnings. The company has come under pressure after Neil Young removed his music from its platform in protest at the spread of misinformation about COVID-19 by star Spotify podcaster Joe Rogan. Other musicians followed.
Wall Street’s losses threaten to end a streak of strong daily gains for the major indices this week, though they are still on track for weekly gains.
Investors had several earnings reports to review, with mixed results for stocks. Mobile operator T-Mobile rose 10.3% after posting strong results. Health insurer Humana rose 5.7% and high-end clothing company Ralph Lauren rose 4.5% after also reporting encouraging financial results.
The fall in equities was wide. Retailers, industrial companies and energy companies also fell. Manufacturers of household and personal goods made gains.
Investors are also bracing for the latest update on the job market recovery. The Labor Department will release its January monthly report on Friday.
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