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The stock-market pendulum swung in the other direction again Tuesday, though how exactly it treated investors' individual portfolios was largely contingent on how much technology and tech-esque exposure they had.
The major catalyst today was last night's announcement by Snap (SNAP) CEO Evan Spiegel that the company would fall well short of its internal current-quarter revenue and earnings estimates. "The macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month," he says.
Snap shares cratered 43.1% in response Tuesday and sent shockwaves throughout the rest of the digital advertising space. Google parent Alphabet (GOOGL, -5.0%), Facebook parent Meta Platforms (FB, -7.6%) and Amazon.com (AMZN, -3.2%) were all swept up in the selling pressure.
Not only did that spark a flurry of single-stock downgrades from the analyst community, but CFRA's Sam Stovall downgraded the entire communication services sector.
"A rapid recovery in any area driven by advertising and consumer spending is not expected in the near to intermediate term," he says. "What's more, increased regulatory risk directed toward the larger information technology companies will also likely add pressure."
Also Tuesday, S&P Global's flash U.S. Composite PMI Output Index, which reflects both manufacturing and services activity, fell to 53.8 in May from 56.0 in April – still expansion, but at a slower rate than last month, amid weaker demand growth and heightened inflationary pressures, among other factors.
And new single-family home sales plunged 16.6% month-over-month to a 591,000 annual rate in April as increases in housing prices and mortgage rates put the brakes on homebuying.
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Distress in the communication services (-3.6%) and technology (-1.5%) sectors weighed most heavily on the Nasdaq Composite, which dropped 2.4% to 11,264 and is now down roughly 30% from its Nov. 19, 2021, high. The S&P 500 was off a more modest 0.8% to 3,941, while the Dow Jones Industrial Average managed to wrangle a 0.2% gain, to 31,928, out of Tuesday's mess.
"Obviously markets are fragile, distressed, and volatile, but with the Nasdaq down much more than the broader markets, clearly not all downside is the same thing," says David Bahnsen, chief investment officer with wealth management firm The Bahnsen Group. "The 'shiny objects' of the market – particularly tech stocks that thrived during the pandemic but have no underlying business model – have been most vulnerable, and that vulnerability will continue."
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Other news in the stock market today:
Market downturns like 2022's slump are sometimes referred to as a "reset." In short, says Luiz Pacheco, a partner at Brainvest Wealth Management, investors are reassessing risks, and that's causing a repricing in most assets.
"There are many causes for this risk reassessment, mainly interest rates and inflation," he says, "[but they] are not the only culprits, however. The war in Ukraine, although now on the backburner, can always escalate to the rest of Europe, and the risk of an economic recession in the U.S. is growing."
For more active investors, this reassessment could mean a lot of adjustments to better position their portfolios for the next economic twists and turns. Not so for 401(k) investors, who might make a few tweaks, but otherwise should continue to dollar-cost average into high-quality funds.
Some of those funds will be more familiar to more investors than others. We regularly look at the 100 most popular mutual funds offered in 401(k) programs – a list of offerings that you're more likely than not to come across in your workplace retirement plans. And we also separate the wheat from the chaff.
Today, we've gone back and reviewed the list, and we've highlighted 29 actively managed 401(k) funds that stand out as buys. However you choose to build your retirement portfolio, it's extremely likely that at least a few of these top-flight funds are offered through your 401(k) plan.
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