Jul 22 • 8M

Twitter Earnings on Watch After Snap Setback

Snap is down 30% overnight after earnings disappointed investors, taking social media stocks down with it…

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(Updates with earnings. See bold font section below).

Good morning contrarians! It is Friday, July 22.

Stocks rallied again yesterday, led by the Nasdaq (again), which was up 1.4%. But the mood saw an abrupt turn after the close, as Snap (SNAP 0.00) reported disappointing second-quarter results and announced plans to slow hiring. Investors dumped the stock and other social media companies along with it. One of these, Twitter (TWTR 0.00), reports earnings before the open…

State of Play

As of 0630, things are pretty quiet. Perhaps too quiet:

  • Stock futures are down a bit, with the Nasdaq leading the drop (-0.4%). S&P 500 futures are down 0.2%;

  • Individual stocks making moves include SNAP, which is down 30%. Meta Platforms META 0.00 has given up another 5% overnight. Micron MU 0.00 is also down 5%;

  • Bonds are seeing some bids, another sign of risk-off. The 2-year yield down 6 basis points to 3.04% and the 10-year down 9bps to 2.82% (yields move inversely to prices) — the yield curve still inverted;

  • Cryptos are moving higher as well, however. Bitcoin is up 2% to trade around $23,500;

  • Commodities aren’t doing much with WTI crude oil down 1% to trade around $95/barrel;

  • Breaking news out of Germany, which agreed to bail out energy company Uniper. The government will take a 30% stake in the company, which had seen its supplies of Russian natural gas cut. Uniper appears to only trade in Europe. The big question here is about who might be next and what second-order effects there may be.

Earnings

Another pretty big day for earnings awaits. As discussed at the outset, Twitter will be at the center of investors’ attention after Snap’s disappointment. We are also due to hear from American Express (AXP 0.00), Schlumberger (SLB 0.00), and Verizon (VZ 0.00) before the open at 0930.

Speaking of disappointments, AMEX will be under scrutiny after Discover Financial (DFS 0.00) yesterday said it would suspend share buybacks. Verizon will be watched after AT&T (T 0.00) disappointed investors with its earnings.

Update: Twitter missed on top- and bottom-line estimates and the stock sold off, but perhaps not as badly as might be anticipated. As of 0850 the bleeding appears to have stopped with shares off 2% from yesterday’s close. So nothing terribly dramatic.

Earnings were better for AMEX and Schlumberger, both of which beat on top- and bottom-line and raised guidance. Those stocks are moving higher.

Verizon earnings met estimates but the company lowered guidance and VZ is dropping ahead of the open…

Economic Data

Markit’s Purchasing Managers Index, or PMI, report is out at 0945. This is broken out into manufacturing and services and there is also a composite report. Only the first two have economist estimates. These are 52.0 for manufacturing and 52.6 for services — both roughly in line with the previous month and still above the 50 level that separates expansion from contraction. Would not expect this to move markets unless it is a major surprise in either direction.

The Bottom Line©

It’s been a solid week for stocks. Very solid, in fact, with the S&P and Nasdaq up 3.5% and 5% for the week, respectively. The Snap news now threatens to put an end to all that. It may yet be an outlier. Snap could simply be losing market share to the likes of Tiktok. But there is enough bad earnings news elsewhere to be concerned; travel stocks have been getting punished with United Airlines (UAL 0.00) and American Airlines (AAL 0.00) dropping after their earnings and cruise lines slumping after Carnival (CCL 0.00) diluted shareholders by selling more stock.

The market has proven itself resilient this week. Far more resilient than many people (including, it must be admitted, the individual writing this) gave it credit for. This morning’s earnings will be a good test of that. In many ways this may even be more important than next week’s much-hyped events — that would be second-quarter GDP and the FOMC meeting, both of which could turn into non-events. But we’ll get into that next week.

For today, this morning’s earnings should be the driver. The situation in Germany may bear watching. It’s Friday so some unexpected (bad) news after the close at 1600 may be in the offing, as tends to happen. Either way, have a great weekend and hope your air conditioning holds up.