A plunge in Facebook Inc's shares has pushed the Nasdaq down more than one per cent, the index's biggest one-day drop in a month, but industrial stocks rose after the United States and the European Union said they would negotiate on trade.
Facebook shares on Thursday dived 19.0 per cent, their biggest ever one-day percentage drop, after the social media giant forecast years of lower profit margins. That drop wiped out some $US100 billion - believed to be the worst single-day evaporation of market value for any company.
The decline in Facebook shares weighed on the S&P 500 technology index, which dropped 1.6 per cent.
Shares of Amazon.com Inc, another member of the so-called FANG group of momentum stocks, fell 3.0 per cent and were the second-biggest drag on the Nasdaq and S&P after Facebook. In after-hours trading, they were modestly positive in volatile trading following the company's quarterly results.
New tools will help users limit their time on Facebook. Source: AAP
Shares of Twitter Inc, scheduled to report its quarterly results on Friday, slid 2.9 per cent.
The plunge came one day after the firm missed revenue forecasts for the second quarter and warned that growth would be far weaker than previously estimated.
Facebook Chief financial officer David Wehner warned Wednesday in an earnings call with analysts that revenue growth had already "decelerated" in the second quarter and would drop "by high single-digit percentages" in coming quarters.
At one point during the call, Facebook shares were trading down as much as 24 per cent, an unprecedented drop for a large firm.
Facebook has blamed the slowdown in part on its new approach to privacy and security.
Brian Sheehan, a Syracuse University professor of communication and advertising, said the weak forecast "made investors nervous about more basic long-term issues" with the huge social network, notably its diminished appeal to younger users.
"With or without privacy issues, investors are scared that Facebook's interactions, particularly with those under 25, are falling," Sheehan said.
Facebook has partially blamed the slump on the decline in user growth. Source: AP
Jefferies & Co. analyst Brent Thill said "many investors are having a hard time reconciling that deceleration... It just seems like the magnitude is beyond anything we've seen".
But while the Nasdaq and the S&P 500 slumped, the Dow rose, in part on the strength of industrial stocks. Industrials, which have been a bellwether of trade tensions, were lifted after US President Donald Trump and European Commission President Jean-Claude Juncker agreed to work to resolve US tariffs on steel and aluminium and Europe's retaliatory duties.
S&P 500 energy stocks also advanced, ending the session up 1.0 per cent, as oil prices rose on the disruption of some of Saudi Arabia's oil shipments.
European Commission President, Jean-Claude Juncker and US President Trump agreed on relaxing extra tariff measures. Source: AP
"What we're seeing is the market broadening out, which is healthy," said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
"We need to see a rotation take place when the leadership is under pressure, and the high-flying tech names have been in the leadership position."
The Dow Jones Industrial Average rose 112.97 points, or 0.44 per cent, to 25,527.07, the S&P 500 lost 8.63 points, or 0.30 per cent, to 2,837.44 and the Nasdaq Composite dropped 80.05 points, or 1.01 per cent, to 7,852.19.
More humans needed
Facebook reported its user base was still growing but not as fast as some expected. Monthly active users rose 11 per cent to 2.23 billion - below most estimates of 2.25 billion.
Richard Windsor, a technology analyst who writes the Radio Free Mobile blog, said the new outlook should not be surprising.
"This is a direct result of scale as it becomes increasingly difficult to grow at such high rates when a company hits this size," he wrote.
Windsor added that Facebook is forced to hire more people to handle tasks such as filtering inappropriate content after discovering the limits of artificial intelligence.
Facebook CEO Mark Zuckerberg. Source: AAP
"Weaknesses in AI are forcing (Facebook) to keep hiring humans to do the jobs that the machines are incapable of," he said.
Brian Wieser at Pivotal Research Group said the company appears to have hit a "wall" on growth in advertising.
In a research note, he said Facebook's outlook "suggests that while the company is still growing at a fast clip, the days of 30 per cent-plus growth are numbered."
Until Wednesday, Facebook shares had been at record highs as investors seemed to shrug off fears about data protection and probes into the hijacking of private information by the political consultancy Cambridge Analytica.
Chief executive Mark Zuckerberg said Facebook has invested heavily in "safety, security and privacy" after being rocked by concerns of manipulation of the platform to spread misinformation, warning of an "impact" on profitability.
