A Big Week Ahead

By Connor Smith  |  Friday, July 22

Snap Back To Reality. U.S. stocks fell on Friday after a disappointing earnings report from Snapchat parent Snap sounded alarms about the macroeconomic environment. 

The S&P 500 index fell 0.9%, snapping a three-trading-day winning streak. It still managed to gain 2.6% on the week. The Dow Jones Industrial Average fell 0.4% but rose 2% on the week.

The Nasdaq Composite fell 1.9% to pare this week's gains down to 3.3%. The tech-heavy index struggled especially on Friday, as investors considered what Snap's dreadful update could mean for other tech and advertising-focused stocks. As Snap sank 39%, Meta Platforms dropped 7.6% and Pinterest fell nearly 14%. Google's parent Alphabet fell 5.7%.

Meta and Alphabet will be joined by other big tech firms like Microsoft, Apple, and Amazon.com in reporting results this upcoming week. During the firm's earnings call Snap CFO Derek Andersen provided comments that don't bode all too well for firms focused on selling ads. According to a Sentieo transcript, Andersen said:

“We’re seeing these various headwinds put pressure on the earnings of a wide variety of companies, and this is directly impacting the demand for advertising. Specifically, advertising spending, in particular, auction-driven direct response advertising is among the very few line items in a company’s cost structure that they can reduce immediately in response to pressure on their top line or their input costs. As a result, as many industries and verticals have come under top line or input cost pressure, advertising spending has been amongst the first areas impacted.”

Big tech earnings are a big enough event on their own, but my Barron's colleague Sabrina Escobar writes that they could be eclipsed by the Federal Reserve's next move on interest rates. Sabrina adds:

Rising interest rates have been a main focus for investors since early this year, when the Fed embarked on an aggressive plan to tighten monetary supply in the face of rising inflation. June’s inflation data came in hotter than expected, prompting analysts to predict that the Fed could raise the federal-funds rate by at least 0.75%, and as much as 1% at the end of its July meeting next Wednesday. A 1% increase would be the biggest interest rate hike since the 1980s, and would heighten concerns that the economy could dip into a recession.

“If they come in with a 75-basis-point hike as we expect, but soften the language about future hikes it would be a huge boost to markets next week,” said Luke Tilley, chief economist at Wilmington Trust.

On the flip side, if big tech reports follow Snap's lead, it could be a difficult week ahead for investors. 

Watch our weekly TV show on Fox Business Saturday or Sunday at 10 a.m. or 11:30 a.m. ET. This week, Republican Sen. Cynthia Lummis of Wyoming discusses her investment in bitcoin and her efforts to regulate the cryptocurrency industry.

DJIA: -0.43% to 31,899.29
S&P 500: -0.93% to 3,961.63
Nasdaq: -1.87% to 11,834.11

The Hot Stock: HCA Healthcare +11.4%
The Biggest Loser: SVB Financial Group -17.2%

Best Sector: Utilities +1.4%
Worst Sector: Communication Services -3.5%