Two economic reports on Thursday fanned fears that the Federal Reserve might need to go further in its aggressive fight against inflation. It might seem odd that evidence that a recession looks less likely, and fewer Americans are unemployed could be construed as negative, but that is exactly how investors reacted.
The major indexes fell sharply in Thursday (22 Dec) trading as fresh economic data revived worries about the Federal Reserve's attempts to battle inflation.
Combined, the economic reports suggested to investors that the Federal Reserve might need to continue to push interest rates higher and hold them there longer in an attempt to slow the economy, leaving all four main US indexes facing a negative weekly performance - unless there is a sharp recovery in Friday's (23 Dec) final pre-Christmas session.
‘There is something of the seasonality here in anticipation of a Santa Rally, and we'd maybe seen the indices get a little short-term oversold. This looks like a short-term countertrend rally rather than the start of a sustained move higher, however seasonality is a factor to watch here,’ Neil Wilson, of Markets.com wrote.
Tesla (TSLA:NASDAQ) also continued its slump, as analysts grow increasingly uncertain of the company's outlook. Shares in electric vehicle maker slid nearly 9% on 22 December, meaning the stock has now lost 35% this month.
After the bell Wednesday (21 Dec), Canaccord Genuity trimmed its price target for the automaker from $304 to $275, citing ‘cosmically bad’ public sentiment and a ‘distraught’ shareholder base. ‘Elon Musk is doing Elon Musk things,’ Canaccord's George Gianarikas wrote. ‘Some of this is Twitter-related drama, much is not,’ referring to doubled-discounts worth $7,500 on some of its high-priced car models in the US.
NIKE
Shares in sneakers-to-soccer balls seller Nike (NKE:NYSE) strode 6.7% higher to $115.8 over the week, the stock buoyed by forecast-beating second quarter results (20 December) as US shoppers stocked up on sportswear and trainers ahead of Christmas.
Revenue sprinted 17% higher year-on-year to $13.3 billion for the quarter ended 30 November, ahead of the $12.6 billion expected and representing Nike's best quarterly revenue growth in a decade, boosted by increased promotions and deeper discounts to shift excess inventory.
Earnings per share (EPS) of $0.85 was comfortably ahead of the $0.64 Wall Street was looking for, and there was relief as CEO John Donahoe insisted Nike is now past its inventory peak.
Sales in North America, Nike's largest market, surged 30% higher while revenues in China, its third biggest market by sales, dropped by 3% compared to last year, continuing a trend the retailer has been contending with as China copes with lingering Covid lockdowns and a retail spending slowdown. Nike Direct sales were up 16% for the quarter at $5.4 billion and digital sales were up 25%.
FEDEX
Delivery firm FedEx (FDX:NYSE) is often seen as a bellwether for the economic outlook given the breadth of its exposure across areas like transportation, logistics and e-commerce. Therefore, its decision to pull annual earnings guidance in September had a wider impact on the market as well as sinking its own share price.
Its decision to reintroduce guidance alongside better-than-feared second quarter results (20 December) also had a broader, and this time more positive, effect on sentiment.
Quarterly earnings per share came in at $3.18 versus the $2.82 which had been pencilled in by analysts. The company is forecasting full year earnings per share of between $13 and $14. The shares gained around 3% on the news to $172.04 as of close on 21 December but remain down around 35% year-to-date.
The company upped its plans for annual cost savings by $1 billion to $3.7 billion as it looks to counter the impact of lower volumes.
MICRON TECHNOLOGY
Memory chip-maker Micron Technology (MU:NASDAQ) delivered a disappointing first-quarter update, missing its own sales and earnings guidance and pointing to an even steeper fall in revenues to come.
The firm, which specialises in chips used to store data in computers and smartphones, reported sales of $4.09 billion against a company-issued forecast of $4.25 billion and a figure of $6.6 billion the previous quarter, as customers work through a glut of inventories built up following the pandemic.
The first-quarter loss per share was $0.18 against a forecast of $0.09, and the company lowered its outlook for the second quarter to sales of between $3.6 billion and $4 billion - a drop of 50% on last year. That would imply earnings of -$0.52 to -$0.72 against a consensus of -$0.32 per share.
Along with a 10% reduction in headcount the firm said it would fix salaries, do away with bonuses and suspend its share buyback programme, although it still sees profitability being ‘challenged’ this year. Micron shares have already lost 45% of their value this year, dropped another 5% following the results.
