Topline
The stock market fell on Friday as the sell-off in tech stocks intensified after Netflix posted lackluster earnings—with the Nasdaq Composite falling deeper into correction territory and posting its worst week since 2020.
The tech-heavy Nasdaq Composite is down over 13% from its record highs last November.
Key Facts
The Dow Jones Industrial Average fell 1.3%, around 450 points, while the S&P 500 lost 1.9% and the tech-heavy Nasdaq Composite 2.7%.
The Nasdaq fell further into correction territory—over 10% from its record highs last November—and has plunged over 7% this week alone, its worst since October 2020.
Shares of streaming giant Netflix dragged down the index, plunging 22% on Friday after the company’s fourth-quarter earnings report showed a slowdown in subscriber growth.
Streaming rival Disney fell nearly 7%, while other big tech names like Tesla and Amazon lost over 5% and 6%, respectively.
Tech stocks have been getting hammered recently, largely thanks to a continuing surge in government bond yields this week, with the U.S. 10-year Treasury hitting a high of 1.9% on Wednesday.
Investors have remained laser focused on the Federal Reserve and how it will deal with surging inflation, with the central bank tightening its monetary policy and preparing to raise interest rates as soon as March.
Surprising Fact:
Shares of Peloton rebounded 10% on Friday, a day after the stock plunged 24% on reports that the company would temporarily halt production of its at-home fitness products amid waning demand—but CEO John Foley later said the reports are false.
Crucial Quote:
“Wall Street has gone from debating how aggressive one should rotate out of tech into cyclicals, to sell it all,” says Edward Moya, senior market analyst for Oanda. “U.S. stocks have been on a rollercoaster ride after abysmal results from Netflix.” With inflationary pressures “not going away anytime soon,” the Fed could potentially become “overly aggressive in tightening monetary policy,” he warns.
Key Background:
Stocks are off to a dismal start to 2022 so far. The Dow is down over 6% in January, the S&P 500 has dropped over 8% and the tech-heavy Nasdaq more than 12%. Markets have struggled to gain footing amid rising investor concerns around high inflation and tighter monetary policy from the Federal Reserve.
Contra:
“Absent some kind of systemic shock, as long as earnings stay solid and interest rates remain in the range we have seen in the five years before the pandemic, stock prices are likely to have a solid foundation over time,” says Brad McMillan, chief investment officer for Commonwealth Financial Network. “That solid foundation also suggests that when those worries subside, valuations and stock prices can bounce back reasonably quickly, as we saw in 2020, 2018, and indeed after the financial crisis itself.”
What To Watch For:
Next week’s tech earnings, with companies like Apple, Microsoft and Tesla all reporting results.
