The tech rebound is officially over after both Facebook owner’s disastrous earnings and a couple major central bank decisions paved the way for borrowing costs to continue to surge. The ECB’s hawkish shift opens the door for tightening this summer. The BOE had four dissenters that wanted to double today’s rate increase. Technology stocks are going to struggle as confidence fades that the middle-of-pack companies will be able to navigate persistently high inflation, surging borrowing costs, and intensifying margin pressures.
US stocks seem poised to have a tug-of-war here over uncertainty with the economic backdrop and as the Fed reaction to surging pricing pressures will take a couple more months. Volatility will remain elevated until we get past the March FOMC decision.
Meta
The music stopped for Facebook. The social media giant is in trouble over rising competition, surging metaverse costs, and zero growth. The metaverse is years away and this outlook is abysmal as surging Reality Labs costs will kill their margins this year.
Facebook’s discouraging earnings sent large parts of technology stocks down, especially social media companies.
US Data
A wrath of US data did nothing to change the outlook for the labor market recovery and surging pricing pressure environment. Jobless claims trend remains intact and productivity continues to improve. The omicron variant impact. Efficiency has improved as companies have to adjust to surging prices and high labor costs.
The US service industry softened in January as the omicron wave continued to weigh on supply constraints and as businesses struggled with elevated costs and short labor supplies. The headline ISM services index fell from 62.3 to 59.9, slightly better than the consensus estimate of 59.5. The service sector slowdown will not last much longer, but it could persist into the second quarter. The labor shortage is a persistent problem that continues to fuel into surging costs which is now at unsustainable levels for some businesses.
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Ed Moya
