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Tech Stocks Set to Drop After Facebook Profit Disappoints

The rally in U.S. stocks looked set to stumble as investors hammered shares of

Facebook

owner Meta Platforms premarket and awaited earnings from

Amazon.com,

Ford Motor

and Snap.

Futures for the technology-focused Nasdaq-100 dropped 1.9% Thursday, signaling tech stocks would come under pressure. The tumble came as investors wiped 22% off the stock price of Meta, which painted a gloomy outlook in its earnings report, in premarket trading.

Several other tech stocks also skidded ahead of the opening bell. Spotify Technology fell 10% after the company, facing pushback against a star podcaster, declined to issue annual guidance.

Twitter

lost 7%, Nvidia 2.8% and Tesla 2.7%.

Amazon.com and

Pinterest,

which are set to report earnings later Thursday, fell premarket by 3.5% and 9.7%, respectively. One bright spot was

T-Mobile US,

whose shares jumped 7.8% premarket after the telecommunications company topped analysts’ profit forecasts.

On the economic front, initial claims for jobless benefits fell to 238,000 in the week through Jan. 29. Claims hit a record low in early December as businesses held on to more workers amid a persistent labor shortage.

Amateur investors took the stock market by storm a year ago, buying up shares of meme stocks like GameStop and AMC Entertainment. Many remember it as a revolution against Wall Street, but in the end, they largely just lined the pockets of major financial firms. WSJ’s Dion Rabouin explains. Illustration: Sebastian Vega

Broader market gauges were also poised for opening losses. Futures for the S&P 500 fell 0.9%. Contracts for the Dow Jones Industrial Average slipped 0.1%.

If sustained in Thursday’s trading session, the decline would hit pause on a nascent recovery for the stock market, which endured a bruising start to the year. The S&P 500 rose for four days through Wednesday, notching its biggest four-day percentage gain since November 2020.

Tech stocks such as Meta, previously known as Facebook, have powered much of the market’s gains since the start of the pandemic. Investors are reassessing their prospects as the Federal Reserve paves the way for a series of interest-rate increases this year.

Money managers are pivoting toward sectors including energy and banking they say stand to benefit from the economic recovery and higher borrowing costs. But the sheer size of stocks such as Meta raises the risk that losses could weigh on the broader market, investors say. The rotation has hit hedge funds investing in tech and other fast-growing companies.

“Investors are going in a short space of time from almost a perfect environment for risk assets to a more normal environment,” said Nicholas Brooks, head of economic and investment research at

Intermediate Capital Group.

“Companies that benefited most from that dramatic easing in monetary policy would be more vulnerable to large selloffs if there are any disappointment in their earnings.”

Money managers are pivoting toward sectors they say stand to benefit from higher borrowing costs.



Photo:

Allie Joseph/Associated Press

It isn’t just the Fed looking to tighten monetary policy. The Bank of England pressed ahead with raising borrowing costs Thursday, nudging up its policy rate to 0.5% from 0.25%. The pound strengthened 0.3% to $1.3624. Yields on 10-year U.K. government bonds rose following the bank’s decision, as did yields on equivalent U.S. debt. The yield on benchmark Treasury notes climbed to 1.802% from 1.765% Wednesday.

The European Central Bank held its key interest rates and said it would keep them there until inflation was durably at its target. The euro weakened 0.2% to $1.1285.

Overseas stock markets were broadly lower. The Stoxx Europe 600 lost 0.5%, led by losses for industrial goods and tech shares. London’s FTSE 100 slipped 0.2%. In Asia, Japan’s Nikkei 225 fell 1.1%, while Chinese markets were closed for a public holiday.

Facebook tumbled after posting its first earnings report since Chief Executive

Mark Zuckerberg

outlined a pivot to the metaverse. The company said it expected revenue growth to slow because users were spending less time on its more lucrative services.

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“I think it was a bit more of a wake-up call for the market that some of these stocks can’t keep up on this trajectory,” said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.

Facebook’s move follows a 22% drop in the share price of

Netflix

when the streaming company reported slowing subscriber growth in late January.

PayPal

slumped 25% Wednesday after the payments company lowered its profit outlook.

Write to Joe Wallace at joe.wallace@wsj.com

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