A historic plunge in the stock price of Facebook’s parent company helped yank other tech stocks lower on Wall Street Thursday, abruptly ending a four-day winning streak for the market.
The 26.4% wipeout in Meta Platforms, as Facebook’s owner is now known, erased more than $230 billion in market value, easily the biggest one-day loss in history for a U.S. company. The stocks of other social media companies including Twitter and Snap also fell.
Because Meta is valued so highly, a big swing in its stock price can also sink or lift broader market indexes. The S&P 500 fell 2.4%, its biggest drop in nearly a year. The tech-focused Nasdaq composite gave up 3.7%, its biggest loss since September 2020. The Dow Jones Industrial Average, which does not include Meta Platforms, fell 1.5%.
In raw numbers, the S&P 500 fell 111.94 points to 4,477.44. The Dow dropped 518.17 points to 35,111.16. The Nasdaq slid 538.73 points to 13,878.82.
So, what does this mean for you?
Ryan Detrick, chief market strategist for LPL Financial, Sam Stovall, chief investment strategist at CFRA, and Jeffrey Hirsch, editor at Stock Trader’s Almanac, answered a few questions for USA TODAY.
What happened with the stock market today?
Detrick: Obviously, it was all about Facebook. Facebook’s earnings were quite the dud and opened up the Pandora’s Box for the bears to take control and that led to a sell-first-ask-questions-later for the overall market.
Hirsch: Facebook happened to the market today. Ignited the sell. Market is searching for support.
Stovall: The market reacted quite negatively to Facebook’s earnings miss and weaker-than-expected revenue forecast, causing investors to believe that the correction that started in early January has further to fall.
Why did it happen?
Detrick: It’s just one company (Facebook), but it brought back the concerns we all still have and brought them to the forefront…We have had a very nice balance in stocks recently … The negative Facebook news gave all the reason to have the beach ball go back the other way and led to the broad-based weakness that we saw.
Hirsch: Facebook reported weaker-than-expected numbers and guidance was bad. (The) metaverse build-out will be expensive and FB is losing its edge with Apple privacy restrictions.
Stovall: Three things are likely to keep pressure on stocks. First, the Fed is expected to raise short-term interest rates by four or more times this year by one-fourth of 1% each time. This forecast has caused “growth stocks,” like technology, to decline since higher interest rates make these stocks less valuable in the future. Second, first-quarter GDP forecasts have declined, causing investors to worry that the Fed may take an aggressive stance against inflation just as the economy is slowing, possibly throwing it into recession. Third, because of Facebook’s huge representation within the S&P 500 and its poor Q4 results and forward guidance, investors now fear the same disappointing results for other influential stocks.
Does it matter to your 401(k) retirement plan?
Detrick: In the short term, no. This is just one day, and this is just one company that sparked it. Overall, investors need to remember that earnings season has been very strong. Corporate America has been very optimistic about the economy…This is a near-term blip. The overall picture is quite positive.
Hirsch: No. Stick with your well-diversified plan
Stovall: Our 401(k)s will likely show a reduction in Q1 value, but investors need to realize that investing is a long-term proposition and that short-term setbacks are common. Don’t let your emotions become your portfolio’s worst enemy.
What’s the bigger picture for the markets?
Detrick: The key word is volatility. Last year, investors were spoiled with historic moves that were higher. This year, it’s not going to be as easy, and we are going to see more volatility and wider swings…Midterm (election) years are quite volatile, and this is playing out.
Hirsch: Midterm election years are usually rough and there are other fundamental, technical, monetary and geopolitical pressures. Midterm years are weakest in Q2 and Q3 but that sets up the sweet spot of the 4-year cycle from Q4 midterm year to Q2 pre-election year.
Stovall: This year will likely be a positive but volatile year for the markets. There will probably be more days like these, due to concerns over interest rates, midterm elections, geo-political events such as Russia and Ukraine.
What’s next in the near term?
Detrick: We think investors need to focus on the fundamentals of the economy, which are still quite strong. But this continued back-and-forth-beach-ball effect with stocks very well could be with us for the near term as we are trying to carve out a low in the stock market.
Look at 2008 (the start of Great Recession). You had bank stocks totally breaking down well before the rest of the market. But bank stocks and financials have held in there recently. Financials are such an important group to our lifeblood, and they are holding up quite well. That’s one major difference from the financial crisis.
Hirsch: Continuing heightened volatility, but it looks like the market will find near-term support here. Rally back towards recent highs into the end of the best six months of November to April.
Stovall: Long-term investors should continue with their investment plans and look upon market declines to add to positions at attractive prices.
The Associated Press contributed. Have a tip on business or investigative stories? Reach the reporter at firstname.lastname@example.org or 602-509-3613 or on Twitter @CraigHarrisUSAT or linkedin.com/in/craig-harris-70024030/