A surprise tech selloff, led by Twitter Inc. (TWTR - Get Report) , shook markets mid-afternoon Thursday, July 27. The sudden turn lower dragged the Nasdaq from record highs and soured an overall upbeat mood in the morning session.
The S&P 500 was down 0.10%, and the Nasdaq slid 0.63%. The Dow Jones Industrial Average added 0.40%, clinching a new record close of 21,797.
The major stock indexes closed at records on Wednesday, July 26. The S&P 500 added 0.03% to 2,477, the Dow Jones Industrial Average rose 0.45% to 21,711, and the Nasdaq climbed 0.16% to 6,422. The S&P 500 and Nasdaq traded at records on Wednesday for their second day in a row.
Twitter Inc. fell 13% on worrying signs of slowing user growth over its second quarter. Twitter reported 328 million month active users, a flat reading from the first quarter, though 5% higher than the same quarter a year earlier. The social network reported a net loss of $116.5 million, wider than $107 million a year earlier. Adjusted earnings of 8 cents a share topped estimates by 3 cents. Revenue of $573.9 million fell nearly 5%, though came in higher than $537.5 million consensus.
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Large-cap tech stocks were largely in the red by mid-afternoon. Apple Inc. (AAPL - Get Report) , Alphabet Inc. (GOOGL - Get Report) , Nvidia Corp. (NVDA - Get Report) and Netflix Inc. (NFLX - Get Report) were lower, while the Technology Select Sector SPDR ETF (XLK - Get Report) fell 0.4%. Tech companies have been under pressure since June 9 when a sudden selloff pulled the sector from its lofty heights. Tech, primarily the FAANG stocks (Facebook, Amazon.com Inc. (AMZN - Get Report) , Apple, Netflix, and Alphabet), has been a major contributor the market gains in the year to date.
Facebook Inc. (FB - Get Report) failed to inspire broad gains in tech. Facebook Inc. was nearly 3% higher on Thursday after the social media giant reported second-quarter earnings and sales that topped Wall Street expectations. Facebook earned $1.32 a share in the quarter, surpassing estimates of $1.12. Revenue was $9.32 billion, which exceeded Wall Street estimates of $9.2 billion.
Advertising revenue jumped 47% from a year earlier to $9.16 billion, easily beating projections of $9.02 billion. Mobile ad revenue made up 87% of Facebook's total ad revenue during the second quarter, up from 84% a year earlier. The company reported 1.32 billion daily active users during the quarter and said it had just more than 2 billion monthly active users for the first time ever, which was more than analysts expected.
"Overall, we view this as a great quarter for Facebook," said Cramer and the AAP team. "The company continues to over-deliver on the lofty expectations set by investors, even with the company continuing to spend to grow in scale."
James "Rev Shark" Deporre isn't as optimistic, though. Facebook's recent run is already stretching the Nasdaq, he wrote in his column for our premium site for investors, Real Money. Get his insights with a free trial subscription.
Verizon Communications Inc. (VZ - Get Report) rose 7% after reporting a revenue beat in the second quarter on customer gains. Adjusted earnings of 96 cents a share were in-line with estimates, while revenue of $30.5 billion exceeded estimates of $29.81 billion.
Verizon reported a net increase of 614,000 retail postpaid connections in the second quarter. Net phone additions of 358,000 included 590,000 smartphones in the quarter, compared with 86,000 net phone additions, including 336,000 smartphones, in the second quarter of 2016. Analysts polled by FactSet expected Verizon to add 86,100 wireless subscribers in the quarter, after losing more than 300,000 in the first quarter.
Other telecom shares on the rise besides Verizon included AT&T Inc. (T - Get Report) , Frontier Communications (FTR - Get Report) , Telefonica S.A. (TEF - Get Report) , Vodafone Group PLC (VOD) and BT Group PLC (BT) . The ProShares Ultra Telecommunications ETF (LTL - Get Report) increased 1.1%.
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Anheuser-Busch InBev (BUD) led the consumer sector higher. The alcohol company reported better-than-expected earnings on a successful integration of SABMiller, the company it bought for more than $100 billion last year. Adjusted core earnings increased 12% to $5.35 billion. Strong performances in Mexico, Australia and South Africa offset weakness in Brazil.
PayPal Inc. (PYPL - Get Report) moved higher on Thursday after a better-than-expected second quarter and solid full-year guidance. The online payments operator earned an adjusted 46 cents a share, a dime higher than a year earlier and above consensus of 43 cents. Sales of $3.14 billion exceeded estimates of $3.09 billion. Transactions increased 23%.
Southwest Airlines Co. (LUV - Get Report) fell 5% after the company reported a 9% decrease in profit as operating expenses weighed on second quarter earnings. Earnings of $1.24 per share beat FactSet analysts' estimate of $1.20 but fell below last year's $1.28 earnings for the second quarter. Revenue increased 6.7% year-over-year to $5.7 billion, setting a quarterly record. Southwest said revenue growth was due primarily to passenger revenues of $5.2 billion.
The second-quarter earnings season approaches the halfway mark with 48% of S&P 500 companies having reported on their recent quarterly performances. Of those, 73.6% have exceeded analysts' earnings estimates, while 72% have topped revenue consensus, according to Thomson Reuters data. Analysts anticipate a blended earnings growth estimate of 10.7%.
Weekly jobless claims in the U.S. rose in the past week, according to the latest reading from the Labor Department. The number of new claims for unemployment benefits increased 10,000 to 244,000. That was around 4,000 higher than anticipated. The less-volatile four-week claims average held at 244,000.
Durable goods orders in the U.S. grew at a steady clip in June, rising by 6.5%, largely tied to a large number of Boeing Co. (BA - Get Report) orders. Excluding transportation, orders for long-lasting goods increased just 0.2%. Core capital goods orders decreased by 0.1%.
The Federal Reserve on Wednesday tiptoed the line between hawk and dove. Following its July meeting, the Fed said it would implement changes to its balance sheet "relatively soon" provided the economy expands as expected. Previous language in the Fed's statement had said those changes would come this year.
The Fed currently holds $4.5 trillion in Treasurys and mortgage-related bonds on its balance sheet. Unloading those would likely tighten monetary conditions in the same way an interest rate hike would. The Fed has previously emphasized that when it plans to do so it will be a gradual process.
"We do have some concern about that causing some volatility and it's such unprecedented territory I'm not sure if anybody honestly knows what it's going to do," Mike Piershale, president of Piershale Financial Group, said of the unwinding process.
The Fed left the federal funds rate at 1% to 1.25%, as widely expected. Another rate hike is not expected until at least December. Even then, chances of a year-end increase are only at 42.9%, according to CME Group fed funds futures.
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