Mid-day Summary: Meta platforms, higher interest rates put a stop to the rebound bias

The S&P 500 is down 1.8% in a retreat paced by the growth stocks in response to disappointing earnings results and guidance from Meta Platforms (FB 239.29, -83.51, -25.8%), as well as a rise in interest rates.

The Nasdaq Composite underperforms with a 2.6% decline, while the Dow Jones Industrial Average (-0.9%) and Russell 2000 (-1.2%) are down closer to 1.0%.

The 26% plunge in Meta shares has taken a toll on other growth stocks, but especially those that will report earnings after the close like Amazon.com (AMZN 2812.91, -199.33, -6.6%) and Snap (SNAP 25.06, -7.00, -21.8%).

The S&P 500 communication services (-5.8%), consumer discretionary (-2.4%), and information technology (-2.0%) sectors, which are home to the mega-caps, are down between 2-6% as a result. The consumer staples sector (+0.3%) is the only sector trading higher.

Regarding interest rates, Treasury yields have moved higher following the ECB and Bank of England policy meetings. ECB President Lagarde acknowledged the high inflation risks in the economy and didn’t rule out a rate hike this year, and the Bank of England raised its key lending rate by 25 basis points for the second consecutive meeting.

The 2-yr yield is up four basis points to 1.19%, and the 10-yr yield is up six basis points to 1.83%. The dollar (95.36, -0.57, -0.6%) has weakened against a stronger euro (+1.2%), which is keying off rate-hike expectations.

After entering the session up 8.7% from its Jan. 24 low, it’s not too surprising to see the S&P 500 step off the rebound train for the time being. The Invesco S&P 500 Equal Weight ETF (RSP 156.49, -1.39, -0.9%) is down more modestly, although the fact that it saw technical resistance at its 50-day moving average (158.37) yesterday might be keeping a lid on dip-buying efforts.

Looking at other earnings movers, Qualcomm (QCOM 179.65, -8.48, -4.5%), Merck (MRK 79.33, -2.68, -3.3%), Honeywell (HON 196.11, -11.44, -5.5%), and Spotify (SPOT 161.66, -30.26, -15.8%) are also struggling following their earnings reports.

T-Mobile US (TMUS 120.36, +10.78, +9.8%), on the other hand, is heading the other way with a 10% gain after beating EPS estimates and providing encouraging FY22 guidance.

Reviewing today’s economic data:

  • The ISM Non-Manufacturing Index for January decreased to 59.9% (Briefing.com consensus 60.0%) from an upwardly revised 62.3% (from 60.0%) in December. The dividing line between expansion and contraction is 50.0%. The January reading marks the 20th straight month of growth for the services sector, albeit at a slightly slower pace.
  • The key takeaway from the report is that growth moderated some for the non-manufacturing sector in January with Omicron and supply-related pressures seen in the slippage of indexes for production and employment, and the uptick in the supplier deliveries index, which is indicative of a worsening in the pace of deliveries.
  • Initial jobless claims for the week ending January 29 decreased by 23,000 to 238,000 (Briefing.com consensus 245,000) while continuing claims for the week ending January 22 decreased by 44,000 to 1.628 million.
  • The key takeaway from the report is the turn lower in initial claims, which suggests there has been an easing of the Omicron impact that contributed to the higher initial claims levels in recent weeks.
  • Q4 nonfarm business sector labor productivity increased 6.6% (Briefing.com consensus 2.7%) with output increasing 9.2% and hours worked increasing 2.4%. Unit labor costs increased 0.3% as hourly compensation increased 6.9% versus the 6.6% increase in productivity.
  • The key takeaway is that the healthy increase in productivity in Q4 helped keep unit labor costs in check, but it isn’t necessarily resonating as a staying factor given the steady acknowledgment of rising labor costs heard from companies reporting Q4 earnings.
  • Factory orders for manufactured goods decreased 0.4% m/m in December (Briefing.com consensus -0.4%) following an upwardly revised 1.8% increase (from 1.6%) in November. Shipments of manufactured goods jumped 0.4% after increasing 0.7% in November.
  • The key takeaway from the report is the uptick in order growth for nondefense capital goods, excluding aircraft – a proxy for business spending.
  • The final IHS Markit Services PMI for January increased to 51.2 from 50.9 in the preliminary reading.