S&P 500 OUTLOOK:
- S&P 500 dives as Meta’s drop triggers a deep sell-off in the technology sector, dragging the broader market lower
- Shares of Facebook parent company Meta Platforms plummet 26% at the closing bell, wiping out more than $252 billion off the company’s market capitalization
- Investors’ attention will now turn to Friday’s NFP report
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U.S. stocks declined on Thursday amid widespread weakness in the technology space, triggered by a major drop in Meta Platforms (FB) following disappointing quarterly results and poor forward–guidance. At the closing bell, the S&P 500 fell 2.44% to 4,477, ending a four-day winning streak and stopping the recent bullish momentum in its tracks. Meanwhile, the Nasdaq 100 bore the brunt of the sell-off, sinking 4.22% to 14,501 as shares of Facebook’s parent company plummeted 26%, wiping out more than $252 billion in the market capitalization in what was its biggest one-day drop ever.
Strong earnings from certain companies such as Microsoft (MSFT), Alphabet (GOOG), Tesla (TSLA) and Apple (AAPL) have helped stabilize the tech sector earlier this week after a brutal correction in January, but not all mega-caps are executing well or delivering outstanding results. With divergent performance, Wall Street is becoming increasingly selective and will need other catalysts to feel confident before deploying additional capital into risk assets.
All in all, sentiment remains fragile, making it unlikely that stocks will experience a significant reboundfrom current levels in the near term, especially amid mixed and uneven earnings.Heightened volatility may also limit risk appetite, further preventing a sustained recovery in equities.
From a macroeconomic standpoint, the environment is turning more hostile for stocks. For instance, the Fed’s tightening cycle is a key threat, but there are still uncertainties about the process, specifically how aggressive it will be in the face of soaring inflationary pressures. Investors are discounting four interest rates increases for 2022, but a fifth hike is slowing creeping into expectations.
The central bank normalization effort has no preset course and forecasts will certainly change as new information about the economy becomes available. That said, the January nonfarm payrolls report due out tomorrow morning may offer some clues about the underlying health of the labor market.
The consensus suggests that employers added 150,000 workers last month, but many Wall Street firms anticipate a big payroll decline, including Goldman Sachs, which estimates a loss of 250,000 jobs. The White House has warned that the latest NFP will be ugly, so it would be good to prepare for a negative surprise.
While a weak NFP print could be caused by the current COVID-19 wave (temporary), it may still spark recession talk on Wall Street, leading traders to price in a less aggressive tightening cycle by the Federal Reserve. This, in turn, may provide some respite to risk assets and boost stocks, but we shouldn’t be shocked if gains don’t hold amid the prevailing “selling the rip mentality”, a phenomenon that hasplayed out several times in recent weeks.
S&P 500 TECHNICAL ANALYSIS
The huge drop in Meta Platform stock prices dragged the entire market, killing off bullish sentiment and the nascent recovery in the equity space seen earlier this week. As a result, the S&P 500 took a sharp turn lower, breaking below the 4,500 psychological level. If the index remains below this floor in the coming sessions, we could see a test of the 200-day SMA, before a sustained move towards 4,280.
On the other hand, if bulls regain control of the market and drive the price higher, resistance is seen at this week’s high, followed by 4,625, near the 50-day SMA. If the index manages to climb above these barriers, buying pressure could accelerate, paving the way for a climb towards 4,750.
S&P 500 TECHNICAL CHART
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—Written by Diego Colman, Contributor