Earnings season is fully upon us! Tech giant Facebook reported their quarterly earnings this past Wednesday after the market closed. While Facebook did not miss expectations by a large margin, overall expenses increased substantially and the future doesn’t look as bright as it once was. As a result, the company suffered the largest one-day loss in its history. Furthermore, the one-day loss in market value, equating to $119 billion, is the largest by any company in US stock market history. By the end of the day Thursday, the price of the stock dropped by more than $41 per share and 19%. The price drop sets Facebook stock back to its value held in late April of this year.
The drop in the NASDAQ was extremely unexpected for many investors. During trading on Wednesday, the NASDAQ Composite Index hit a record high as investors started to cram back in FANG stocks once again. In regular trading, Facebook itself had a one percent increase.
While trading during the day was positive after the bell rang it was clearly a much different story. Facebook posted weaker-than-expected daily users and admitted that revenue growth would decline. As a result, many investors sold their shares and got out of the stock, fearing the worst. The bigger concern for investors is that what happened to Facebook will spread outside the walls of their facilities, according to Daniel Ives, Head of Technology Research at GBH Insights. “The Facebook guidance debacle will be a tough pill to swallow for the bulls and weigh on FANG names as this comes on the heels of a Netflix miss as well last week. Facebook’s outlook will cause worries on the Street and that could spread to other names with stock multiples coming under attack. Facebook’s nightmare guidance will spook tech investors with a near-term white-knuckle period ahead.”
Beyond the potential for future drops in value, the drop in Facebook had a direct and indirect effect on other aspects of the market. The Facebook drop also led the tech-heavy NASDAQ to fall a percent. The Invesco QQQ Trust, which tracks the NASDAQ 100 Index, also fell by more than a percent and a half. Another giant Amazon, which reported earnings on Thursday, also lost roughly 9 percent after hours. Facebook competitor Twitter also felt the pain losing 3 percent on Wednesday after hours.
Despite the negativity, the broader market rebounded Thursday on a better foot, which was in large part due to positive news on the trade war front. On Wednesday, the United States and European Union successfully reached a deal to suspend further escalation of the tariff battle. President Donald Trump met European Commission President Jean-Claude Juncker where the possibility of an eventual trade deal was discussed. Instead of escalating the issue, they made a pact to put the tariffs on hold and focus on the common economic enemy, China. In the negotiations, the European Union was much more flexible than the United States had hoped and the outcome sends a positive message despite the trade war worries.