Snapchat (NYSE:SNAP) had a huge warning sign this week when it announced it was going to miss its targets for earnings. While this is largely a reaction to the economic climate, we’re still seeing that a lot of tech stocks are falling into a similar trend.
I think that SNAP is the canary in the coal mine for the economy as a whole. It’s one of the most successful digital advertising companies out there with one of the highest ROIs for advertising.
This sudden, rapid deceleration in growth is because of the deterioration of macroeconomic conditions. Most retail stocks have shown a huge consumer slowdown. Companies like Uber and Meta have resorted to hiring freezes and are cutting costs across the board.
Consumer activity is slowing. January and February saw strong consumer spending. But spending began to decline in March and has dropped ever since.
SNAP uses other companies like Zoom (Nasdaq:ZM) and DocuSign (Nasdaq:DOCU) in its day-to-day operations. And with a decline in SNAP’s revenue, we’ll also see a slow down in these associated companies.
We’re also starting to witness the downstream effects of SNAP’s huge drop. Macroeconomic data is weakening dramatically. Homes sales dropped 16% this month. And the U.S. PMI’s services and manufacturing dropped month-over-month.
A slowdown in e-business is not good for the market, and Wall Street is starting to understand this reality. It really comes down to inflation. The Federal Reserve won’t step in until inflation has decelerated for at least two to four months. After that, we’ll see a pivot to a more dovish approach.
The manufacturing slowdown will decelerate the already slowing inflation. And by August, inflation will be lower. This sets the stage for a dovish pivot by the third quarter. There’s going to be some pain over the next few months. But it’ll result in huge gains later in the year.
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