Well, it’s another red day in the market. And as it has been for much of this year, the further we get into the trading day, the worse it gets. Accordingly, the question, “Why are stocks down today?” is pertinent for investors today.
All major indices are in the red this afternoon with losses accelerating. Whether we’re talking about the Dow, S&P 500 or the Nasdaq, which is leading today in terms of losses, it’s ugly out there.
To make matters more perplexing, bond yields are off substantially. At the time of writing, the 10-year U.S. Treasury bond was yielding less than 2.8%. For stocks, lower yields — and lower discount rates — are supposed to be bullish for valuations.
However, it is earnings season, and we’re getting more high-profile earnings hitting the tape. Today, Snap (NASDAQ:SNAP) and Twitter (NASDAQ:TWTR) both reported second-quarter financials. To say the least, these earnings underwhelmed investors, who have been in selling mode following these reports.
Let’s dive into why investor sentiment is shifting so harshly today.
Why Are Stocks Down Today?
After market close yesterday, Snap reported earnings. A smaller player in the social media space, many may wonder why Snap’s earnings matter. Well, its last earnings report showed substantial issues with the company’s business model, sparking a sector-wide decline that bled into other social stocks.
This quarter wasn’t much better. The company missed earnings estimates, and its average revenue per user (ARPU) metrics declined 13% year-over-year. To make matters worse, Snap’s cash burn accelerated with a free cash flow loss of $147 million.
Ouch.
Twitter’s report was also disappointing, though the stock is up on expectations the deal with Elon Musk could close. Overall, this sector, which was supposed to be one of the high-growth standouts in the tech space, has been less-than-inspiring of late.
For investors looking forward to upcoming earnings from other high-profile players, there appears to be a pessimistic tone building.
Perhaps such a tone is warranted if we are indeed headed into a recession. However, this could also be a great time to buy growth stocks for those with a long-term investing horizon. It’s all about how investors are looking at equities, and right now, the rose-colored glasses are being put away.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
