Growth and technology stocks rebounded on Friday, as traders weighed stellar results from Amazon.com Inc against an unexpectedly strong U.S. employment number that propelled Treasury yields higher.
The Nasdaq Composite index, which is heavy on tech and other growth stocks, was recently jumping about 2% a day after a historic crash in shares of Facebook owner Meta Platforms wiped $200 billion from the company’s market value and weighed on broader markets after its earnings disappointed Wall Street.
Shares of Amazon, which delighted investors by hiking its Prime subscription rate, were recently up over 15%, on track to increase its market value by more than $200 billion.
Shares of social media platform Snap Inc rose more than 50%, after tumbling by a quarter in the previous session.
The fourth-quarter earnings season has been mixed for growth and tech companies, with bitter disappointments from such players as Meta, streaming giant Netflix and fintech PayPal partially offset by uplifting results from Amazon, Apple and Microsoft.
While many of the big tech-focused stocks are often thought of as a single group, “the divergence between Amazon and Meta Platforms’ earnings is an important reminder that each company is unique with its own set of problems and opportunities,” wrote Julian Koski, chief investment officer of asset management firm New Age Alpha in a note to investors.
“The best stocks are those that deliver the growth that is implied in their stock price, no matter what group or category the stock may be part of,” he said.
Investors were also digesting Friday’s robust jobs report, which fueled a surge in Treasury yields to their highest levels in more than two years. Higher yields tend to weigh on growth stocks as they threaten to erode the value of companies’ future earnings.
The recent gyrations have attracted retail buyers. Thursday’s net purchases of Meta’s shares by retail investors hit $231 million, a 3-1/2 year high according to Vanda Research, marking it the third biggest day of net purchases since January 2014.
WILD SWINGS
Diverging earnings from megacap growth stocks are fueling wild swings in equities, opening the door for more volatility on the heels of last month’s sharp drop as investors grow more discerning in the names they pick.
Many investors started trimming holdings of tech stocks even before the earnings season kicked off as future earnings growth promised by the sector loses its appeal when central banks raise rates, increasing the immediate financial rewards of holding risk-free government bonds.
Some banks have been recommending rotating portfolios towards stocks that do well when inflation and bond yields rise, such as banks, insurers, miners and oil companies, ever since the U.S. Federal Reserve flagged it would start raising rates from next month.
“A tightening Fed historically brings lower returns and great uncertainty for equities,” analysts at Morgan Stanley wrote Friday. The bank said they “remain sellers of rallies” and believe the S&P 500’s fair value is closer to 4,000. The benchmark index was recently up around 0.9% at 4,518.
Others, however, believe the big picture for tech stocks is far from bleak.
“Overall, the earnings outlook is still solid, with the global tech sector on track for earnings growth of around 15%,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note to clients.
“In our base case, we expect valuations to stabilize and for strong mid-teens earnings growth to be reflected in share prices over the next 12 months.”
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