Snapchat's 40% Drop Drags Down Tech Stocks & Dow Jones Index

Summary:

The Dow Jones index is trading lower after the steep drop in stocks of Snapchat and other tech stocks such as Meta and Google.

The profit warning from Snapchat’s owner and the greater-than-expected drop in new home sales for April are piling the pressure on the Dow Jones index and other US exchanges this Tuesday. The Dow is down 1.65% at the moment, pulled down by the slump in shares of Snapchat, Meta (formerly Facebook) and Google’s parent company Alphabet.

A weak earnings projection from Snapchat’s owner Snap Inc sent the stock spiralling downwards by nearly 40%, adding more shockwaves to markets already being jolted by 40-year high consumer inflation and higher interest rates. In addition, the stock dragged several social media and tech stocks down with it. The top losers are companies that derive revenues from online ads, such as Meta and Alphabet. Meta Platforms (formerly Facebook) is down 10%, while Alphabet Inc is trading 8.09% lower.

But the bad news does not stop there. The Richmond Fed’s monthly manufacturing index reading fell from 14 in April to -9 in May, a steep drop below the expected reading of 10 in the Bloomberg survey of the region’s manufacturing conditions. This added to other regional manufacturing data that show a pattern of contraction in May.

Capping off the slew of negative triggers for the Dow Jones index is the dramatic slowing of new home sales. The 591,000 new homes sales in April were well short of March’s downward revision of 709,000 and well below the market consensus of 749,000. New home sales slumped 27% on a year-on-year basis compared to the same period in April 2021. The number of new homes available for sale rose 40% from the same period in 2021, as new homes became more unaffordable for inflation-battered consumer pockets.

Dow Jones Index Outlook

Unsurprisingly, the slump continues the slide from the 5 January high and looks set to challenge the support at 31282 (12 May low). The 20 May low at 30627 offers itself as the next target in line before 30100 becomes available as a new target to the south.

On the other hand, a bounce on 31282 preserves the sanctity of this price level as a support. However, this bounce must transcend the 16 May low/23 May high at 32,000 to make contact with 32464. Only a break of this resistance clears the path to 33195, with 33621 (11 March high) and 34156 (3 March and 4 May highs) serving as additional targets to the north.