Stocks drop despite solid Meta earnings in today’s stock market.
Stocks drop despite solid Meta earnings in today's stock market.
Positive Outlook as Strong Earnings and Economic Data Boost Markets
Stocks started the day higher as investor sentiment remained positive despite concerns over potential interest rate hikes by the Federal Reserve. The focus instead was on the strong earnings reported by Meta Platforms (META), the parent company of Facebook. The optimism was further fueled by solid economic data that eased fears of a recession. However, as the trading session progressed, the Dow Jones Industrial Average snapped its longest winning streak in more than three decades.
META stock witnessed a 4.4% jump after reporting better-than-expected second-quarter earnings of $2.98 per share. Revenue also surpassed estimates, registering an 11% year-over-year increase to $32.0 billion. Additionally, the company revised its full-year capital expenditures forecast while maintaining investments in artificial intelligence (AI) and the metaverse. Brian Mulberry, client portfolio manager at Zacks Investment Management, highlighted, “Meta is leveraging AI to effectively connect people over Facebook, Instagram, WhatsApp, and Messenger. Their focus on developing a strong footprint in the metaverse will drive prospects over the long term.”
On the flip side, Chipotle Mexican Grill (CMG) experienced a 9.8% decline following its earnings announcement. Although the burrito chain beat Q2 profit expectations, its revenue of $2.51 billion and comparable sales growth of 7.4% fell slightly short of analysts’ estimates. Nevertheless, CFRA Research analyst Siye Desta upgraded CMG stock from Hold to Buy, stating, “Despite the comparable sales miss and higher avocado and beef prices, we think the reaction to CMG’s earnings is overblown. Margins are expected to benefit from CMG’s recent tech initiatives and franchise deals, although higher food basket inflation is anticipated in 2023.”
Adding to the positive market sentiment, the Bureau of Economic Analysis reported that gross domestic product (GDP) expanded at an annual rate of 2.4% in the second quarter, surpassing economists’ expectations. This growth rate also exceeded the 2.0% seen in Q1, reinforcing the resilience of the U.S. economy. Furthermore, data from the Labor Department showcased a decline of 7,000 in initial jobless claims, reaching a low of 221,000 – the lowest level since February.
While today’s strong economic data might lead some investors to anticipate a rate hike in September, José Torres, senior economist at Interactive Brokers, warns against jumping to conclusions. Federal Reserve Chair Jerome Powell emphasized that the central bank will thoroughly assess all economic data before making decisions on additional rate hikes. Torres underscored this notion, stating, “A few days of data are far short of the Fed’s pledge to review the entire economic landscape.”
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As the trading day drew to a close, the Nasdaq Composite witnessed a 0.6% decline, settling at 14,050. The S&P 500 and the Dow followed suit with losses of 0.6% and 0.7%, respectively. Notably, the Dow had been on a winning streak for 13 consecutive days, the longest run since 1987.
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