Markets digest banking issues, quarterly earnings and economic data

The Snapchat logo is displayed on a phone screen.

Shares of the Snapchat parent company tumbled by about 20% in after-hours trading Thursday after the company posted its first quarterly sales decline since going public in 2017.

Snap posted $989 million in revenue for the first three months of the year, a decline of 7% from the year-ago quarter and just shy of the $1 billion analysts had expected. It reported a net loss of $329 million.

The company has been struggling to grow its revenue in the face of fierce competition in the social media space and tighter advertising budgets amid broader economic uncertainty.

However, the company pointed to positive growth in the size of its user base — daily active users grew 15% year-over-year to 383 million. Snap added that the subscription service it launched last year in an effort to diversify its revenue, Snapchat+, has reached 3 million subscribers.

In August of last year, the company laid off more than 1,200 staffers, or around 20% of its workforce. Snap said in its Thursday investor letter that it has “achieved the cost-reduction targets we set out as part of our reprioritization.”

Still, Snap said it expects “it will take some time for some of our advertisers to fully recover” and for the platform’s advertising models to match their needs.

The company expects current quarter revenue to be between $1 billion and $1.09 billion, which would mark another decline from the year-ago quarter’s more than $1.1 billion in revenue.

In an effort to attract new users and encourage them to spend more time on the app, Snapchat earlier this month launched an AI chatbot powered by ChatGPT for all users. The tool offers recommendations, answers questions, helps users make plans and, according to the company, can write a haiku in seconds. But some parents and teens have already raised concerns about it.

Packages ready to be delivered are seen during Cyber Monday at the Amazon fulfillment centre in Robbinsville Township in New Jersey, in November 2022. 

Amazon is starting the year back in the black.

The e-commerce giant on Thursday reported a profit of $3.2 billion for the first quarter, up from a loss of $3.8 billion in the year ago quarter and far exceeding analysts estimates.

The swing to a profit comes as Amazon has ramped up its cost-cutting measures in recent months. The company has announced two rounds of layoffs, cancelled products and nixed physical store expansions.

It also comes as key areas of Amazon’s business continue to grow despite lingering recession fears possibly weighing on corporate and consumer spending.

The company’s revenue increased 9% during the quarter from the prior year. Amazon expects second-quarter net sales to grow between 5% and 10% from the same period the year before, or be between $127 billion and $133 billion.

Shares of Amazon rose nearly 8% in after-hours trading Thursday following the results.

“The results indicate that ongoing cost-cutting measures are having a positive impact on Amazon’s business prospects,” said Jesse Cohen, senior analyst at Investing.com. “Amazon’s strong guidance for Q2 revenue is another indicator that the company may be starting to come out of the woods.”

Amazon Web Services, which has long served as a profit engine for the company, also experienced double-digit percentage growth during the quarter, in another positive sign for its overall business.

AWS segment sales rose 16% from the year before to $21.4 billion. That comes after sales growth slowed in the previous quarter, as cloud customers tightened their purse strings due to uncertainty about the economy’s health.

“While our AWS business navigates companies spending more cautiously in this macro environment, we continue to prioritize building long-term customer relationships,” CEO Andy Jassy said in a statement accompanying the earnings release.

Traders work on the floor of the New York Stock Exchange on April 26 in New York City.

Stocks climbed Thursday after a slew of strong earnings from Big Tech lifted the broader equity market.

The Nasdaq Composite rallied for a second consecutive day and recorded its best one-day gain since March 16, while the Dow saw its biggest rise since January.

Meta Platforms stock jumped 14% on Thursday after reporting a growth in revenue for the first time in nearly a year. Shares of Microsoft added 3.2%, Alphabet gained 3.7% and Apple rose 2.8%.

Wall Street had worried about tech earnings and guidance heading into the week, since mega-cap tech stocks drove much of the market’s gains during the first quarter, even as investors contended with turmoil in the banking sector.

Shares of Amazon swelled 4.6% as investors grew optimistic ahead of the company’s latest quarterly results, due after the close.

First Republic Bank shares rose 8.8%, paring back its gains from earlier in the trading session and reversing deep losses from earlier this week after investors concerned that the banking tumult hasn’t been contained sold off the stock in droves.

Investors also digested the latest GDP data that showed consumer spending remained resilient in the first quarter despite a slowdown in the broader US economy.

Snap and Intel also report after the close.

The Dow rose 525 points, or 1.6%.

The S&P 500 gained about 2%.

The Nasdaq Composite marched up 2.4%.

As stocks settle after the trading day, levels might still change slightly.

Randal Quarles, former vice chair of the US Federal Reserve, during the US-Canada Summit in Toronto, Ontario, Canada, on April 4.

On Friday, the Federal Reserve is set to release the findings of its investigation into what caused Silicon Valley Bank to collapse last month. 

Randal Quarles, former vice chair of supervision at the Fed, told CNN in an exclusive interview that he doesn’t expect the report to uncover any smoking guns.

Michael Barr, who succeeded Quarles as the Fed’s top banking regulator, told lawmakers in testimony last month that SVB’s failure was “a textbook case of mismanagement.” 

When the economy sprang back during the pandemic, SVB experienced an influx of deposits from its clients who mainly worked in tech and venture capital. The bank invested that cash in longer-term securities such as bonds. But SVB failed to “effectively manage the interest rate risk of those securities or develop effective interest rate risk measurement tools, models, and metrics,” said Barr.

There are still many unanswered questions about the bank’s implosion including what, if anything, could have been done to prevent it. 

Read more here.

The Nasdaq MarketSite in New York on March 28.

The Nasdaq Composite surged Thursday, as a boost in Meta Platforms stock helped drive a rally in the broader equity market.

The tech-heavy index rose 2.3%. The Dow advanced 459 points, or 1.4% and the S&P 500 ticked up 1.7%.

Shares of Meta added 15% on Thursday after the tech giant on Wednesday reported sales growth for the first time in nearly a year during its latest quarter.

Shares of Deutsche Bank and Barclays gained after the bank reported strong profit growth, assuaging fears about the European financial sector’s stability.

That helped power a rally in First Republic Bank stock, which slipped earlier this week on fears that the US banking turmoil from last month has not been contained. Shares of the regional lender rose 11% Thursday early afternoon as investors snapped up the beaten-up stock.

Meanwhile, mortgage rates rose for the second week in a row.

People eat at an outdoor restaurant in Manhattan on April 12 in New York City.

Consumer spending, which accounts for more than two-thirds of economic output, contributed the most to US economic growth in the first quarter, as Americans continued to spend robustly on goods and services, especially in restaurants and bars.

Spending was stronger compared with the previous quarter, led by purchases of cars and vehicle parts and health care services.

However, the Federal Reserve’s yearlong rate-hiking campaign and high inflation weighed on business spending, which fell in the beginning of the year. Spending from both residential and nonresidential businesses declined for the fourth consecutive quarter in the January-through-March period.

Spending on goods and services in the January-through-March period was the strongest since the second quarter of 2021.

But spending is expected to fizzle out in the coming months because that strength earlier in the year was due to higher credit card usage, a drawdown in savings, warmer weather, and “increased reliance on sputtering state and local stimulus programs,” said Lindsey Piegza, chief economist at Stifel Financial.

“Instead of the consumer continuing to pull back, we saw a lot of that temporary support hold up spending in the first quarter or, as I like to describe it, the consumers’ last stand,” Piegza said. “Most of those supports will not prove lasting, so it’s likely that growth will continue to slow under the weight of elevated inflation and as the Federal Reserve continues to raise rates.”

Homes sit on lots in a neighborhood on April 20 in Cutler Bay, Florida.

Mortgage rates inched up again this week. Prior to last week’s rise, rates had dropped for five weeks in a row as inflation continues to ease.

The 30-year fixed-rate mortgage averaged 6.43% in the week ending April 27, up slightly from 6.39% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.10%.

Even though rates ticked up for the second week in a row, with the rate of inflation decelerating, mortgage rates should gently decline over the course of the rest of this year, said Sam Khater, Freddie Mac’s chief economist. 

“Incoming data suggest the housing market has stabilized from a sales and house price perspective,” Khater said. “The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home.”

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

A First Republic Bank branch is pictured in Midtown Manhattan in New York City on March 13.

Shares of First Republic Bank gained 10% on Thursday, paring back losses earlier this week that came after the regional lender reported a 41% drop in deposits during the first quarter.

The embattled lender’s stock dropped 50% on Tuesday before continuing its losses in the following days as spooked investors abandoned the stock.

Investors are now buying the dip on First Republic, since most banks have reported their earnings with no additional bad news, said Edward Moya, senior market analyst at OANDA.

“If you’re an active trader, it doesn’t hurt to throw something at this. This is like one of those, well, you could have nice upside,” he said.

Most of the big banks have reported this earnings season, as have the regional banks who saw their stocks tank during the banking turmoil last month. JPMorgan Chase reported record revenue, and competitors Citigroup and Wells Fargo also reported strong results.

PacWest Bancorp earlier this week reported that it has added about $1.8 billion in deposits since March 20.

Barclays and Deutsche Bank posted strong profit growth for their latest quarters, helping assuage banking fears in Europe after Credit Suisse was rescued in March.

But just because shares of First Republic are up and fears of banking contagion have receded somewhat doesn’t mean that all is well with the banking sector, Moya warned.

“We shouldn’t be surprised if we hear a couple more banks are vulnerable to another deposit run here, but I think for now, just getting through this first round, this is rather optimistic that it seems that there’s not another key player that is vulnerable just yet,” he said.

Shares of First Republic are down about 95% this year.

A man takes a selfie in front of a sign of Meta at its headquarters in Menlo Park, California, in October 2021.

Stocks ticked up Thursday, boosted by a slew of robust earnings reports even as economic data indicated that the US economy is slowing.

Meta Platforms’ latest earnings report that showed the company saw sales growth for the first time in nearly a year.

Shares of the tech behemoth swelled 14.4% after it reported after the close Wednesday that it grew revenue by 3% during the first quarter after three consecutive quarters of declines. User growth was also strong compared to prior quarters.

Shares of Barclays and Deutsche Bank added 4.3% and about 3%, respectively, after the banks posted strong profit growths despite the banking tumult last month.

While fears about the financial sector’s stability have mostly receded in Europe, concerns have ramped up in the United States.

First Republic Bank stock tumbled 0.4% on Thursday, continuing its slide after the bank said its total deposits fell 41% in the first quarter and questions swirl about its survival.

Meanwhile, the latest weekly jobless claims fell to 230,000, after gains in recent weeks suggested the US labor market could finally be softening.

First-quarter GDP data released Friday morning showed the US economy slowed to an annualized and seasonally adjusted rate of 1.1%, as rising interest rates and high inflation weighed on business investment. That’s below economists’ expectations of 2% and could put pressure on the Federal Reserve to hit pause on its rate hikes.

The latest pending home sales and mortgage rates are due later this morning.

Investors are also awaiting earnings from Amazon and Snap after the close.

The Dow rose 88 points, or 0.3%.

The S&P 500 gained 0.6%.

The Nasdaq Composite advanced about 1%.

Attendees at a career fair at a community college in Bolivia, North Carolina, on April 20.

First-time claims for unemployment benefits fell last week.

There were 230,000 initial claims filed during the week ended April 22, down 16,000 from an upwardly revised total of 246,000 claims the week before. Economists were expecting 248,000 initial claims, according to consensus estimates on Refinitiv.

The four-week moving average was 236,000.

Continuing claims, which are filed by people who have received jobless benefits for more than one week, unexpectedly dipped to 1.858 million for the week ended April 15 from a revised 1.861 million the week prior. 

Economists were expecting 1.878 million, according to Refinitiv.

Weekly jobless claims have trended up in recent weeks, reflecting a softening in the US labor market and mounting reports of layoffs. However, they remain below historical averages: In the decade before the pandemic, weekly claims averaged 311,000.