North American stock markets closed mixed Tuesday, and bond yields continued to come down, as worries that aggressive moves to curb decades-high inflation might tip the economies into recession dampened investors’ risk appetite.
All three major U.S. stock indexes pared earlier losses in afternoon trading, with the blue-chip Dow turning positive. Even so, the S&P 500 ended lower and was just 2.2 percentage points above the threshold where it would be considered to be in a bear market.
Much of the sell-off was driven by a profit warning from Snap Inc, which sent the company’s shares plummeting 43%, sparking contagion throughout the social media segment.
Meta Platforms Inc, Alphabet Inc, Twitter Inc and Pinterest Inc were down between 5% and 24%.
Snap said on Monday it was expecting to miss quarterly revenue and profit targets set just a month earlier and would have to slow hiring and lower spending.
The bleak view from one of the sector’s well-known names underlines the impact of the Ukraine war, surging inflation and rising interest rates on social media companies just when they were trying to shake off the hit from changes to Apple’s iOS operating system.
“Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook, Pinterest and Google,” said Dennis Dick, a trader at Bright Trading LLC.
“Once you start thinking about Google, that’s when the markets starts to sell off.”
Tuesday’s selloff comes days after a Bank of America fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years.
The U.S. Federal Reserve has vowed to aggressively tackle persistent price growth by hiking the cost of borrowing, and minutes from its most recent monetary policy meeting, expected on Wednesday, will be parsed by market participants for clues regarding the speed and extent of those actions.
Investors currently expect a series of 50-basis-point rate hikes over the next several months, fueling fears that the central bank could push the economy into recession, a scenario that is increasingly being baked into analyst projections.
Sales of new U.S. single-family homes tumbled to a two-year low in April, likely as higher mortgage rates and record prices squeezed first-time buyers and those in search of entry-level properties out of the housing market, data showed on Tuesday.
“This is bad news for home prices and economic activity,” James Knightley, chief international economist at ING, said in a note.
“Weakening demand and rising supply imply the possibility that house prices will soon top out and start to fall. Rising interest rates in an environment of falling home prices are never a good combination for consumer sentiment and will add to the chances of a retrenchment and potential recession down the line,” he said.
Other data showed U.S. business activity slowed moderately in May as higher prices reduced demand for services.
Canada’s main stock index rose as resource and financial shares gained after investors returned from a long weekend. U.S. stocks had closed higher on Monday, so investors were playing some catch up.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 88.59 points, or 0.4%, at 20,286.20.
The energy sector climbed 2.5%. The materials sector, which includes precious and base metals miners and fertilizer companies, added 1.4%.
Gold was up 0.7% at about $1,866 per ounce, while the price of oil settled down 0.5% at $109.77 a barrel.
Financials advanced 0.9%, ahead of earnings from Canada’s major lenders with Bank of Nova Scotia and Bank of Montreal reporting results on Wednesday.
Canada’s top six banks are expected to post an average 12% drop in second-quarter earnings sequentially, as increased expenses and loan-loss reserves and lower investment banking revenues outweigh strong loan growth and margin expansion from rising interest rates.
In bond markets Tuesday, benchmark 10-year note yields dropped to 2.718%, the lowest since April 27, before rebounding to 2.760%. The 10-year Canadian government bond yield was down 2.9 basis points at 2.803%.
The Dow Jones Industrial Average rose 48.38 points, or 0.15%, to 31,928.62; the S&P 500 lost 32.27 points, or 0.81%, to 3,941.48; and the Nasdaq Composite dropped 270.83 points, or 2.35%, to 11,264.45.
Six of the 11 major sectors of the S&P 500 ended the session in negative territory, with communication services and consumer discretionary suffering the biggest percentage losses.
Apparel retailer Abercrombie & Fitch Co tumbled 28.6% after posting a surprise quarterly loss and cutting its annual sales and margins outlook.
Work-from-home darling Zoom Video Communications Inc jumped 5.6% following its full-year profit hike due to solid enterprise demand.
Declining issues outnumbered advancing ones on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 2.37-to-1 ratio favored decliners. The S&P 500 posted three new 52-week highs and 40 new lows; the Nasdaq Composite recorded 17 new highs and 443 new lows. Volume on U.S. exchanges was 11.78 billion shares, compared with the 13.33 billion average over the last 20 trading days.
Reuters, Globe staff
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