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LGT Navigator: Social media shares put Wall Street under pressure

May 25, 2022

A profit warning from social media company Snap weighed on the entire technology sector, dragging Nasdaq indexes down more than two percent. Nervousness and volatility remain palpable on the stock market floor, and the cocktail of concerns from high inflation, rising interest rates and economic risks are likely to continue to keep investor sentiment highly volatile. Tonight, among other things, the minutes (FOMC Minutes) of the last interest rate decision of the Federal Reserve should be in focus.

Social media shares put Wall Street under pressure

On the New York Stock Exchange, technology stocks were once again in the spotlight. Snap had announced that the profit and revenue forecasts for the second quarter cannot be maintained due to deteriorating macroeconomic trends. As a result, the stock plummeted by more than -40%. Snap's profit warning again reinforced concerns that economic growth, not only in the US, could weaken in the face of high inflation and rising interest rates, and possibly send the global economy into recession. As a result, the indices on the Nasdaq fell yesterday by about -2.2%. The price slump at Snap also weighed on other social media stocks. Thus, the share of the photo platform Pinterest also collapsed by almost -25%. The share of Meta (Facebook) had to accept a daily loss of almost -8% and the share certificate of Google parent Alphabet fell by about -5%. Negative also closed the broad S&P 500, which closed at 3,941.48 points -0.81% lower than the previous day. The Dow Jones Industrial also recorded losses during the trading day but was able to save shortly before the close just into positive territory and ended Tuesday at 31,928.62 points (+0.15%). Investor sentiment was also burdened by worse than expected data from the US housing market. Sales of new homes fell by -16.6% in April compared to the previous month, while analysts had just expected a decline of just under -2%. The decline in New Home Sales was already the fourth in a row.

On Asia's stock exchanges, no clear trend was apparent at midweek. In Tokyo, the Nikkei 225 index was virtually unchanged from the previous day, while the Hang Seng index in Hong Kong rose by +0.5%. In Shanghai, the composite stock index is up around +0.8%.

ECB President Lagarde sees no immediate danger of recession

According to ECB President Christine Lagarde, the euro economy is not heading for a recession from the current perspective despite the ongoing conflict in Ukraine – this is not the baseline scenario of the European Central Bank (ECB). On the sidelines of the World Economic Forum in Davos, Lagarde said, referring among other things to low unemployment.

Consensus building among ECB leaders on upcoming interest rate turnaround

Robert Holzmann, president of the Austrian central bank and member of the ECB Governing Council, considers a possible 50 basis point increase in the key interest rate in July “appropriate.” At the beginning of the rate hike cycle, a larger rate move would make sense and signal to capital markets that the ECB has recognized the need to act, Holzmann said in an interview with Bloomberg. 

ECB Governing Council member and French central bank chief Francois Villeroy de Gallhau takes a different view, preferring a gradual rate hike and thus reinforcing recent statements by ECB President Christine Lagarde. A rate hike of 50 basis points is not currently the consensus of the ECB's Governing Council, Villeroy de Gallhau said on the sidelines of the World Economic Forum in Davos.

The prospect of an interest rate turnaround by the ECB in the near future drove the euro above the 1.07 mark against the US dollar on Tuesday for the first time since the end of April.

Euro economy remains on growth track despite weaker PMI

Companies in Europe's services and industrial sectors were more pessimistic in the latest purchasing managers' surveys than they were a month earlier. The S&P Global Purchasing Managers' Index fell more sharply than expected from 55.8 to 54.9 points, while analysts had expected an average of 55.1 points. However, the PMI had reached its highest level since last September in April. According to S&P Global Chief Economist Chris Williamson, the euro economy remained on an “encouragingly robust growth path” in May, despite the decline in the PMI.

Economic Indicators May 25

MEZ Country Indicator Last period
08:00 GE GDP Q1 (q/q, revision) +0.2%
08:00 GE GfK Consumer Climate (June) -26.5
08:45 FR Consumer Sentiment (May) 88.0
10:00 EZ ECB President Lagarde speaks
10:00 SZ ZEW Economic Perspectives (May) -51.6
14:30 US Durable Goods Orders (April, m/m) +0.8%
20:00 US FOMC Minutes

 

Earnings Calender May 25

Country Company Period
GE Douglas Q2
UK Marks & Spencer Annual
US Nvidia Q1

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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