Economist Mohamed El-Erian described Snap’s recent weak results as a test of market sentiment. And that the “Standard & Poor’s” index, which is currently recording a little less than 4000 points, is likely to retest its lows in June at 3600 points.
“The next few days will be critical for the stock market, as investors see whether the recent recovery can maintain its upward momentum in the face of incoming earnings reports,” said Allianz’s chief economist and president of Queen’s College, Cambridge. “We are tired of interest rate risk, and we have not yet experienced recession fatigue or credit risk,” he added.
El-Erian told CNBC that Snap’s profits, despite its growing user base, showed steady revenue, and this indicates that something is going on in its business, possibly related to the company’s easing of advertising.
Snap’s stock fell nearly 40% on Friday, after the company reported a slowdown in second-quarter revenue and withdrew its third-quarter forecast.
The news from Snap has put pressure on other internet companies. Where “Meta” decreased by more than 7%, “Alphabet” decreased by 5.36%, and “Amazon” and “Microsoft” shares decreased by 1.5 percent each, while “Pinterest” lost about 13%. In turn, Twitter announced a quarterly loss, and revenue.
El-Erian sees Snape’s problems pointing to a broader issue, and other signs that the global economy is slowing down in a rapid fashion, and central banks are racing with quantitative tightening inside the slowing economy. The economic analyst also emphasized that a “policy mistake”, which we are in the middle of, on the part of the Federal Reserve and other central banks has allowed inflation to persist, which means they must now raise interest rates aggressively. “I see the economy slowing down and I think the Fed has no choice but to hit the brakes when it is too late,” he said.
“I think inflation will peak in the United States, at least in the next three or four months,” El-Erian continued. We have to see how stable some of the elements are. But the problem is not that inflation will go down, which is a really good thing. The problem is that inflation will fall as growth likely enters a recession, and that is not good news.”