Market Volatility: Schwab’s Quick Take

U.S. and global stocks fell sharply Thursday as global interest rates rose and certain sectors posted weak earnings. The S&P 500 lost 2.4%, the Dow Jones Industrial Average fell by 1.5%, and the technology-heavy NASDAQ fell 3.7%, its largest one-day decline since September 2020.

Facebook parent Meta lost $252 billion in market value, the biggest one-day value drop in stock market history, after weaker-than-expected user growth and revenue reports. Several other companies have missed revenue or earnings estimates, revised down future earnings estimates, and/or cited compressed margins due to higher labor costs.

U.S. stocks: Earnings not providing the same lift

  • Thursday’s selloff underscored that the quarterly earnings-report lift isn’t as strong as it has been during the past two years. Companies’ future earnings forecasts are not as strong as they had been, and fewer companies are beating earnings estimates.
  • Low-quality and/or speculative market segments were hit even harder than the major averages. The bias toward higher-quality companies has continued to strengthen. The average stock within the Russell 2000 and NASDAQ indices has already experienced a 20% drawdown from a recent high.

Global stocks: International stocks declined less than U.S. stocks

  • International stocks declined less than U.S. stocks on Thursday. Rising interest rates have been negative for stocks with expensive valuations, favoring less-high-priced stocks with more immediate cash flows.
  • Central banks are moving in a hawkish direction, boosting bond yields and stocks in the Financials sector. The Bank of England on Thursday raised short-term rates by 25 basis points, its first back-to-back interest rate hike since 2004.