The whiff of a stagflationary scenario and disappointing company forecasts are causing declines

We could see a continuation of the correction in the markets today. European indices continued to decline, and the deterioration in sentiment was felt most severely by American indices. The S&P 500 is down -1,2%, the Nasdaq 100 -1,4% and the Dow Jones Industrials -1,6%.

Performance of technology giants after the market close

In the spotlight is Meta Platforms, which showed strong results mixed with lower-than-expected forecasts for the coming quarters, which led to share prices falling by almost -15%. Such a strong correction in the valuation of a leading player on the technology market calls into question the sentiment of investors who have so far been very optimistic about news from the world of artificial intelligence and new technologies.

The ongoing earnings season so far shows that investors' attention is focused primarily on company expectations and forecasts, rather than hard financial data. In terms of the previous dynamic growth of technology companies based on estimates and hopes for future revenue growth, the consequences of the next earnings conferences begin to imply higher volatility. This can be seen in the mood of investors who are selling today leading companies from the technology sector, which will show their results today after the market close: Alphabet loses about -3%, and Microsoft decreases by -4%.

Slowing growth rate in the US

Today, information from companies was mixed with macroeconomic data, which in the case of the USA turned out to be ambiguous. On the one hand, GDP growth in the United States in the first quarter was 1,6%, which means a slowdown in the growth rate compared to the previous quarter, and also weaker dynamics than the market expected. This value, however, does not fully reflect the state of domestic demand in the USA, because part of this demand was met by stocks and imported goods, which together reduced the GDP growth rate by 1,2 pp. However, even after correction by this value, it is clear that the US economy is slowing down, which should not be surprising in the context of operating in an environment of high interest rates. On the other hand, higher-than-expected inflation pressure means that the prospect of a reduction in interest rates is now becoming more and more distant, which is visible in the dynamic increase in the yield of 10-year US bonds, which today exceeded the level of 4,71%.

Source: Analysis Department XTB