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Markets Mostly Up; Snap Crashes -24% on Weak Q2

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Market indices closed in positive territory this Thursday — at least three of the four majors did, with only the Russell 2000 finishing -0.12%. The small-cap index is still leading the pack over the past week of trading, however. During the session, both the Dow and Nasdaq closed +162 points, +0.51% and +1.36%, respectively. The S&P 500 split the difference, +0.99% on the day.

A particularly positive development in our current market is how we’re seeing leaders coming off iffy (at best) Q2 earnings reports in the recent past. Tesla TSLA, which missed estimates on its top line yesterday and saw its gross margin beginning to dwindle, led the Nasdaq on the day, +9.8%, while Netflix NFLX, which reported a loss of net subscribers amounting to 970K, still grew +3.44% in today’s session. Bouncing off bad news is a common indicator that a market bottom is in place.

That said, nobody should be expecting recession concerns to dissipate; we’ve still got an inverted yield curve among 2-year and 10-year bond yields, oil prices are still high and the Fed is keeping its aggressive stance in fighting inflation — all three of these things are red flags raised for a future recession. And, depending on how Q2 GDP shakes out a week from today, we may in fact already be in a technical recession.

Speaking of the Fed, next Wednesday is its next monetary policy statement, where it is widely expected to crank up the Fed funds rate another 75 basis points (bps), which will bring rates up to between 2.25-250%. From February 2020 to March of this year, interest rates bottomed to 0.00-0.25%. This, plus the moderate draining of the Fed’s balance sheet every month, shows the U.S. leading the global charge in beating back inflation.

Reporting Q2 earnings after Thursday’s close is social media staple Snap Inc. SNAP, which is getting crushed after hours on top- and bottom-line misses and pulled guidance. Negative earnings of -$0.02 per share was lower than the -$0.01 expected and down from the +10 cents posted in the year-ago quarter. Revenue guidance, which had been taken lower by the company only a month or so into this quarter, went from +18% to flat year over year.

Believe it or not, it’s not all bad news for Snap: Daily Active Users (DAU) gained a better-than-expected 15 million in the quarter to a total of 347 million, with 360 million now expected DAU in the company’s Q3 report. However, Average Revenue per User (ARPU) came in at $3.20, well off the expected $3.57. Snap shares had already been down -65% year to date. These figures won’t be helping things.

The company will now cut spending, including hiring, which is something we’re seeing in the general Tech space. The difference here is that Snap seems behind the pack. As it is, today’s weak performance is taking down other social media stocks, like Meta META, -5.7% on the Snap news. Meta Platforms posts its Q2 earnings results after the closing bell on Wednesday the 27th.

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