U.S. Stocks Wobble After Three-Day Rally

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U.S. stocks wobbled between small gains and losses Friday, trying to extend a three-day winning streak, as investors parsed earnings reports from Twitter and other companies.

The S&P 500 fell 0.1%, a day after the broad benchmark index jumped 1%. The Dow Jones Industrial Average edged up 0.2%, recently adding 60 points, and the Nasdaq Composite declined 0.6%.

A sharp drop in Snap shares weighed on shares of technology companies and added fuel to investor fears about the state of business growth. Snap lost 32% after posting its weakest quarterly sales growth as a public company. The  parent company of popular photo-sharing social-media app Snapchat said it would substantially reduce its rate of hiring.

Meanwhile, Twitter shares fell 1.2% after the company posted a loss and noted that revenue was hurt by uncertainty related to

Elon Musk’s

acquisition. 

Other megacap technology companies, including

Meta Platforms

and

Alphabet,

also pulled back, falling 6% and 3%, respectively. Meanwhile,

American Express

shares rose 3.8% after the company reported a 31% rise in revenue.

A look at the markets shows asset managers are moving money around in ways that suggest they see a recession coming. WSJ’s Dion Rabouin explains what to look for and why they tell us investors are increasingly pricing in a recession. Illustration: David Fang

Even with Friday’s wobbles, the S&P 500, the Dow and the Nasdaq are all on pace to end the week with solid gains, offering a respite to investors who have seen their portfolios pummeled this year. A stretch of earnings reports this week have given investors confidence to wade in and scoop up beaten-down stocks.

Netflix

and

Tesla

were among the companies that exceeded Wall Street expectations, sending their shares soaring to become two of the S&P 500’s best performers this week.

With a 3.5% rise for the week through Thursday, the S&P 500 is on pace to cap its best week in a month. Nonetheless, few investors are willing to call a bottom to a selloff that has dragged the S&P 500 down 16% this year. Persistently high inflation, the possibility of a recession and the war in Ukraine remain at the forefront of investors’ minds. Next week’s meeting of the Federal Reserve, as well as coming gross domestic product data, could inject more volatility in the markets. 

Some investors say they have jumped back into the market in recent weeks to take advantage of bargains, noting that extreme bearish sentiment is often a contrarian signal. BofA Global Research this week reported “max bearish” sentiment among investors in its Bull & Bear Indicator. 

“There’s lots of metrics that point to negativity on equities. That’s a good starting point for us and what has given us more confidence” to add to equity positions, said John Roe, head of multiasset funds at Legal & General Investment Management.

High inflation, the possibility of a recession and the war in Ukraine remain on investors’ minds.



Photo:

BRENDAN MCDERMID/REUTERS

Meantime, investors are maintaining a close eye on Europe, which has been beset by concerns about the cost of living and an energy crisis that could push economies into recession. On Friday, fresh business surveys suggested that the eurozone economy contracted in July. Excluding pandemic lockdown months, this would mark the first contraction signaled by purchasing managers’ indexes since 2013.

Still, the pan-continental Stoxx Europe 600 gained 0.5%. Shares of

Uniper

fell around 20% following the news that Germany would take a 30% stake in the company and provide a bailout deal after it was hit hard by dwindling supplies of Russian gas. 

Traders remain focused on the flow of Russian natural gas through the critical Nord Stream pipeline, as well as the ripple effects from the resignation of Italian Prime Minister

Mario Draghi.

Italy’s benchmark FTSE MIB stock index rose 0.7%. Brent crude fell 0.6% to $98.87 a barrel Friday. 

The euro retreated 0.4% against the dollar to $1.0185, raising the possibility that Europe’s common currency could reach parity again. 

In bond markets, the yield on the benchmark 10-year U.S. Treasury note fell to 2.795%, down from 2.908% Thursday. Yields fall when bond prices rise. 

In Asia, trading was fairly flat. Hong Kong’s Hang Seng Index rose 0.2%, while China’s Shanghai Composite lost 0.1%. Japan’s Nikkei 225 gained 0.4%.

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