Asian equity markets were poised to open lower 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.
Futures for benchmarks in Tokyo and Hong Kong declined, while US stock contracts sank in early Asian trading. Australian financial markets are shut for a holiday. The yen was little changed after weakening beyond 155 per dollar for the first time in more than three decades on Wednesday.
A $250 billion exchange-traded fund tracking the Nasdaq 100 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.
Read more: Meta Sinks on Revenue Guide and Spending Plans: Street Wrap
“Meta’s resources are vast, but not infinite,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown Plc. “The language around spending plans has become bolder once more, and this could be what’s spooking markets.”
In the run-up to the results, the S&P 500 struggled to gain traction, hovering near 5,070 as traders positioned for economic data that will help shape the views on the Federal Reserve’s next steps. Treasury 10-year yields rose four basis points to 4.64%.
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,” Hackett said. “We see this as a positive development for investors looking to diversify away from the recent market leaders.”
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.
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.” – Bloomberg
