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Wednesday, August 10, 2022

US stocks look set to extend decline after weak earnings hit tech-heavy Nasdaq and investors await next week’s Fed policy meet

  • US stock markets look set to mark another day of losses Friday after a brutal tech sell-off.
  • Investors are anxiously awaiting the Fed’s policy meeting next week for details on its plan to cool inflation.
  • Oil prices slid more than 1%, coming under considerable pressure on more gloomy market sentiment.
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US stock futures wavered on Friday after the tech-heavy Nasdaq entered correction territory, while the Federal Reserve’s policy meeting next week continues to weigh on investor sentiment.

Futures on the Dow Jones were about flat, while those on the S&P 500 dipped 0.1% as of 5:20 a.m. ET, suggesting a cautious start to trading later in the day.

Nasdaq futures fell 0.4% in premarket trading after tech stocks came under renewed pressure. Netflix tumbled 20% on reporting poor fourth-quarter earnings and missing subscriber estimates.

Weak subscriber growth dragged down other streaming peers, with Roku and Disney falling 5% and 4% in premarket trade. Tech and other growth stocks are sensitive to expectations of interest-rate hikes in the US, because these make future profits less attractive.

“Investors with excess exposure to tech can consider taking some profits on broad gains over the past year, and reallocating into sectors and assets that will benefit from cyclical growth,” UBS strategists wrote in a note Friday.

Meanwhile, Peleton stock was recovering somewhat, up 8% in premarket trading after plunging 23% Thursday on a report that it’s temporarily halting production of its bike and treadmill due to slowing demand.

The S&P 500 is on track for a third consecutive weekly decline for the first time since September 2020, on niggling concerns over the Fed’s tightening of policy to calm soaring inflation.

Also weighing on market sentiment were comments by Treasury Secretary Janet Yellen, who said inflation has risen more than she and other economists expected. Still, the former Fed chief said she’s confident the central bank and the Biden administration will take steps to bring down price pressures over 2022.

Legendary investor Jeremy Grantham, who predicted the last three market bubbles, on Thursday called for a 50% crash for the S&P 500 after the fourth “superbubble” bursts.

In Asia, regional indices traded lower in the wake of US losses and after China cut its benchmark mortgage rates Thursday in an effort to push down borrowing costs.

The Shanghai Composite fell 0.9%, and Hong Kong’s Hang Seng was about flat. Tokyo’s Nikkei declined 0.9%. 

European markets fell sharply too. The pan-European Euro Stoxx 600 was down 1.4%, while Frankfurt’s DAX slid 1.5%.

London’s FTSE 100 dropped 0.8% after official figures showed UK retail sales slumped 3.7% in December, the biggest fall since January last year.

Oil prices traded lower, but are still near their highest levels since late 2014. Demand in December held up better than feared despite the spread of the Omicron coronavirus variant, and tensions in Eastern Europe and the Middle East are supporting prices due to fears of new supply disruptions, according to UBS.

Brent crude futures dropped 1.78% to $86.81 a barrel, and West Texas Intermediate was down 1.79% at $84.05 a barrel.

“The price slide was triggered by sentiment becoming generally more gloomy, as also reflected in noticeably falling stock markets,” said Commerzbank’s Carsten Fritsch.

Bitcoin fell 6% to $39,133, alongside broader cryptocurrency losses, as risk aversion spread across financial markets. The downturn followed Russia calling for a sweeping ban on cryptocurrency activity.

Read More: Goldman Sachs lists 9 reasons why US stocks are poised to resume their record run despite historically high valuations — and shares its 4 highest-conviction trades for 2022

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