What happened
Shares of Snap Inc. (SNAP 6.70%) were falling fast today on no company-specific news. Instead, the social media stock was tumbling in response to broader market declines as investors ramped up their fears of a potential recession.
As a result, Snap's share price fell 6.5% as of 3:55 p.m. EST.
Now what
Snap investors took notice of news that Morgan Stanley said today that it's cutting 1,600 workers, equal to about 2% of its total staff.
That news came at the same time that JPMorgan Chase CEO Jamie Dimon said today that rising inflation will likely cause a recession next year.
Snap investors combined all of this news from bank stocks with the fact that the Federal Reserve is meeting next week to decide on more interest rate increases. Most economists think that the Fed will raise rates by 50 basis points.
While that will be a less severe increase than at the past few meetings, Snap investors are likely concerned that Fed Chairman Jerome Powell said last week that the "terminal rate" -- the peak interest rate set by the Fed -- will likely need to be higher than previously anticipated.
Snap investors are reacting negatively to all of this because any slowdown in the economy caused by rising interest rates could weigh heavily on the company's advertising business.
Snap's ad sales slowed down in the third quarter, and the company laid off about 20% of its workforce in late August, resulting in a $155 million charge in the quarter.
Now what
Snap investors have weathered a lot of share price volatility over the past year, and there's likely more where that came from.
The company is experiencing a slowdown in ad sales right now and if a recession does materialize, it could cause more advertisers to pull back ad spending on Snap's platform. As a result, investors may want to be cautious with Snap's stock right now.
