The S&P 500 fell nearly 1% on Friday, but finished the week higher, as investors digested disappointing results from Snap that sent social media shares reeling.
The Dow Jones Industrial Average lost 137.61 points, or 0.43%, to 31,899.29. The S&P 500 declined 0.93% to 3,961.63, while the Nasdaq Composite traded 1.87% lower to 11,834.11.
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Those losses cut into weekly gains for all three major averages, with the Dow closing out the week nearly 2% higher. The S&P 500 advanced about 2.6%, and the Nasdaq capped the week up 3.3%.
An earnings miss from Snap, which sent shares tumbling about 39.1%, halted this week's Nasdaq rally. Traders, eyeing some better-than-expected results from tech companies, had deliberated whether markets had finally found a bottom.
"Snap has managed to snap the uptrend in the Nasdaq by reporting disappointing earnings, which has created a cascading effect on the S&P," said Sam Stovall, chief investment strategist at CFRA Research.
"This is just an example of the volatility that investors should expect as earnings are reported, and, therefore, could cause fluctuations in prices in response to better than or worse than results," Stovall added.
The results from the Snapchat parent were followed by a slew of analyst downgrades on the stock. Snap's quarterly report also weighed on other social media and tech stocks, which investors feared could face slowing online advertising sales.
Shares of Meta Platforms and Pinterest fell about 7.6% and 13.5%, respectively, while Alphabet lost 5.6%.
Twitter rose 0.8% despite reporting disappointing second-quarter results that missed on earnings, revenue and user growth. The social media company blamed challenges in the ad industry, as well as "uncertainty" around Elon Musk's acquisition of the company, for the miss.
Verizon was the worst-performing member of the Dow after reporting earnings. The wireless network operator dropped 6.7% after cutting its full-year forecast, as higher prices dented phone subscriber growth.
About 21% of S&P 500 companies have reported earnings so far. Of those, nearly 70% have beaten analyst expectations, according to FactSet.
Economic data weighs on sentiment
Meanwhile, concerns over the state of the U.S. economy also weighed on sentiment after the release of more downbeat economic data. A preliminary reading on the U.S. PMI Composite output index — which tracks activity across the services and manufacturing sectors — fell to 47.5, indicating contracting economic output. That's also the index's lowest level in more than two years.
The report comes a day after the U.S. government reported an unexpected uptick in weekly jobless claims, raising questions about the health of the labor market.
Still, Wall Street has enjoyed a strong week for markets, as traders absorbed second-quarter results that have come in better than feared. On Friday, the S&P 500 touched the 4,000 level, which it hasn't hit since June 9, before coming back down.
The Dow got a boost earlier in the session following a robust earnings report from American Express. The credit card company jumped about 1.9% after beating analyst expectations, because of record consumer spending in areas such as travel and entertainment.
"This is showing you that market expectations are really low, that a little bit of good news can go a long way when you have low expectations," said Truist's Keith Lerner, noting that investors rotated back into growth stocks even amid weak economic data.
To be sure, some market participants do not believe the bear market is over despite this week's gains. Since World War II, nearly two-thirds of one-day rallies of 2.76% or more in the S&P 500 occurred during bear markets, with 71% occurring before the bottom was in, according to a note this week from CFRA's Stovall.
Stovall believes the broader market index could rally as high as the 4,200 level before coming back down to challenge June lows.
— CNBC's Fred Imbert contributed to this report.