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Markets crash on interest rate concerns; SNAP Mixed in Q1 – April 21, 2022

Welp, it was fun while it lasted. Our trading day started off strong, looking to book its first week of trading higher since the start of this month. But as market participants began to trace the expected effects of a 50 basis point hike on the economy in the near term from early next month, there was real apprehension.

The Dow, which was up +331 points or nearly a full percentage point at its session high, closed at -368 points or -1.05%. And the blue chip index did well: the S&P 500 fell -1.48% on the day while the Nasdaq fell a handful, -2.07% or -278. The small-cap Russell 2000 fared the worst of the major indices, -2.29%.

The interest rate on the 10-year bond traded at 3.5-year highs for most of the day, north of 2.9%. That’s almost double where we started the year, and as the 10-year has decoupled from the 2-year, where it reversed for several trading days a few weeks ago, it takes into account the effects of a hawkish Fed turning the thumbscrews on the funds rate and catching up with inflation.

Today was Fed Chairman Jay Powell’s turn to affirm the 50 basis point speech ahead of the Fed’s May 3-4 monetary policy meeting. Yesterday it was dovish former San Francisco Fed Chair Mary Daly who launched the 50 basis point card. So it’s locked, as far as the Fed wants us to know. But with the current sell-off, that leaves some leeway when this interest rate hike is discounted; we saw a similar thing happen in mid-March: the Fed raised rates and stock indices rallied.

social media app company Snap Inc. (INSTANTANEOUS Free report) initially fell -8% on its Q1 earnings report after today’s closing bell, but rather quickly rebounded to +9% late in the session. The company missed net income for only the second time in the last eight quarters, -$0.02 per share vs. $0.00 in the Zacks consensus, as quarterly revenue came in line with expectations at 1.06 billion dollars.

Revenue estimates lower than second quarter guidance, based on the fact that the company continues to struggle with Apples (AAPL Free report) changes to its iOS ad policy guidelines (which have negatively affected many apps; this isn’t just a Snap-based headwind). Still, daily active users (DAUs), the most important metric for a company like Snap, significantly exceeded estimates during the quarter: 13 million vs. 11 million expected. For the year, projections for DAU 343-345 million; the consensus was looking for 341 million.

The company has also been beaten in the past six months: -36.8% year-to-date and -48.4% compared to the same period last year. So the stock, which is still trading at less than half of what it was before its third-quarter 2021 earnings report, had little room for improvement, but on the upside, especially with the rise. improvement of DAU forecasts. If Snap can get its Apple ad situation under control sooner rather than later, it could be another head start for the company. Snap entered its first quarter results with a Zacks rank #3 (Hold).

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