S&P 500 falls, Snap warning drags tech as Nasdaq loses 2%

Snap, Costco, and Goldman Sachs are some of today's stocks: Pro Market Movers May 24
Snap, Costco, and Goldman Sachs are today's stocks: Pro Market Movers May 24

The Nasdaq Composite fell on Tuesday as fears from Snap's bleak warning spread to other tech names, while the Dow Jones Industrial Average rallied into the close from its lows of the day.

The tech-heavy Nasdaq dropped about 2.4% to 11,264.45. The S&P 500 moved 0.8% lower to 3,941.48. Meanwhile, the Dow added 48.4 points, or 0.2%, to 31,928.62. It fell as much as 1.6% earlier in the session.

The blue-chip stock index got a boost from UnitedHealth Group, which jumped 1.1% ahead of the close. Dow components McDonald's, Verizon and IBM all added more than 2%.

The 10-year Treasury yield made a sudden move lower as investors fearing a recession crowded into bonds sending their prices higher. The 10-year Treasury yield slipped as low as about 2.73% on Tuesday after topping 3% earlier this year.

Shares of tech companies led the day's losses as investors feared a slowdown in digital advertising following a warning from social media company Snap. Its shares plummeted 43% after the company said it's bracing to miss earnings and revenue targets in the current quarter and warned of a downturn in hiring. Meta Platforms followed Snap lower, falling 7.6%. Google-parent Alphabet dropped nearly 5% and hit a new 52-week low.

"The main culprit is the Snap warning from Monday evening," wrote Adam Crisafulli of Vital Knowledge, in a note. "Some are a bit incredulous that a relatively small and perennially unprofitable ephemeral social media firm can take down the whole tape, but given how sensitive this tape is, SNAP is able to punch above its weight."

"Tech still dominates the market, both numerically (it remains the biggest weighting) and psychologically, and despite aggressive liquidation in the last couple of months, people still own a lot of it," he added.

Amazon also fell to a new 52-week low, and shares ended the day down 3.2%. Apple shed 1.9%.

"We expect all online ad platforms to feel some impact of a significant consumer pullback," wrote Morgan Stanley analysts after the Snap warning. "Advertising is cyclical."

The negative reversal Tuesday came after stocks rallied Monday as the Dow jumped 618 points, or nearly 2%. The S&P 500 rose 1.9%, and the Nasdaq Composite gained 1.6%. The brief bounce came as the market is mired in a relentless sell-off with the Dow down for 8 straight weeks and the S&P 500 briefly hitting bear market territory on Friday.

Billionaire hedge fund manager Bill Ackman said in a slew of tweets Tuesday that with inflation spiraling out of control, aggressive rate hikes by the Federal Reserve are the only way to tame it and that investors will ultimately favor those measures to avoid "economic collapse and demand destruction."

"If the Fed doesn't do its job, the market will do the Fed's job, and that is what is happening now," Ackman said. "The only way to stop today's raging inflation is with aggressive monetary tightening or with a collapse in the economy."

The S&P 500 sits 18.2% from its record after falling more than 20% from its high at one point on Friday. The Dow's losing streak is its longest since 1923.

Along with tech stocks, the sell-off has been driven by losses in the retail sector following weak earnings and outlooks from Target and Walmart last week. Investors got more poor news from that industry Tuesday with Abercrombie & Fitch dropping 28.6% after reporting that freight and product costs weighed on sales for the fiscal first quarter.

Best Buy shares ended the day up 1.2% after the company reported a mixed quarter.