In last week’s post we revisited the mantra of “not fighting the Fed,” but that too has its limits. This week’s wild swings in stocks, sparked by the 75-basis point increase in interest rates from the Federal Reserve on Wednesday, suggests the market is becoming more selective about picking its Fed battles. But we have seen this story before, and this method has its limits. But when will that limit be reached?
On Friday stocks ended mixed lower, driven by sustained fears of rising interest rates and the likelihood of an emerging recession, pushing the S&P 500 to its worst week since the start of the pandemic in March 2020. Ahead of the long holiday weekend, stocks entered Friday down about 6% for the week. But unlike previous weeks, dip-buyers didn’t come save the day. The Dow Jones Industrial Average declined 38.29 points, or 0.13% to close at 29,888.78.
The blue chip index, which tumbled 2.4% on Thursday, had posted earlier gains Friday, but couldn’t hang on to positive territory and closing below 30,000 for the second consecutive day after having not done that since December 2020. The S&P 500 index, on the other hand, added 8.07 points, or 0.22%, to close at 3,674.84, while the tech-heavy Nasdaq Composite index rebounded to add 152.25 points, or 1.43%, to finish the session at 10,798.35. All three major averages logged their third straight week of declines.
For the week, the S&P 500 dropped 5.8%, while the Dow and Nasdaq each fell 4.8%. The Dow logged its biggest weekly percentage decline since October 2020. The market is reconciling the effect Wednesday’s interest-rate hike by the Federal Reserve, the biggest in almost thirty years. Ahead of the hiking cycle, many economists didn’t foresee rates would be raised as aggressively. But to counter inflation, the Fed sees this as the best recourse. But is it now time to question whether there is too much bearishness in the market?
The May reading on US industrial output, which arrived on Friday, remained in positive territory, despite coming below expectations. This was the fifth consecutive month of growth. This data had gone ignored, and at some point, the bottom has to be reached and dip-buying investors with long-term views will be the ones to benefit. Meanwhile, earnings results from the likes of FedEx, which is often regarded as a gauge of global economic activity, will offer a glimpse of what’s likely to come in the next few quarters. And on that earnings note, FedEx is one of several stocks I’ll be watching this week; here are the others (also note that the markets will be closed on Monday, June 20 for the Juneteenth holiday):
Accenture (ACN) – Reports before the open, Thursday, Jun. 23
Wall Street expects Accenture to earn $2.85 per share on revenue of $16.05 billion. This compares to the year-ago quarter when earnings came to $2.40 per share on revenue of $13.26 billion.
What to watch: Despite firing on all cylinders with revenues and profits which have risen strongly over the past several quarters, Accenture stock hasn’t avoided the punishment that has ravaged the software sector. In the most-recent quarter, its revenue grew 24.5% year over year, while adjusted EPS grew 25% year over year. However, the stock has fallen 32% over the past six months and is down 34% year to date, compared to 23% decline in the S&P 500 index. A leading specialist in the IT consulting and outsourcing space, Accenture has a business that has benefited immensely from the rapid growing demand not only for IT services, but also from increased cloud adoption and digital transitions. And this growth will continue through 2025, according to research firm Gartner, which predicts organizations will “increase their reliance on external consultants.” The company’s guidance on Thursday will be looked upon to assess not only Accenture’s stock valuation, but also whether (and how soon) Gartner’s prediction will prove true.
blackberry (BB) – Reports after the close, Thursday, Jun. 23
Wall Street expects BlackBerry to lose 5 cents per share on revenue of $159.72 million. This compares to the year-ago quarter when it lost 5 cents per share on revenue of $174 million.
What to watch: “Two steps forward and one step back” is the story that continues to plague BlackBerry’s execution. The stock earlier this week rose BlackBerry more than 4% after the security software and services company launched a new version of its platform designed to improve Google (GOOG , GOOGL) Android automotive systems. Aside from cutting costs when they are building in-vehicle infotainment systems, BlackBerry’s new update is said to simplify development and speed up bringing services online and cutting costs on Android Automotive OS development. But how much of this will benefit the company’s top and bottom lines? In the most recent quarter, the company recently missed its Q4 revenue expectations despite the fact that revenue estimates had come down significantly since the start of the prior quarter. Not only did important metrics for the Cybersecurity business showed more erosion, the company guided for essentially no revenue growth this year in that segment. And with Licensing revenues expected to be minimal, investors want to know whether they should put faith in any sort of recovery.
FedEx (FDX) – Reports after the close, Thursday, Jun. 23
Wall Street expects FedEx to earn $6.88 per share on revenue of $24.47 billion. This compares to the year-ago quarter when earnings came to $5.01 per share on revenue of $22.60 billion.
What to watch: When will FedEx stock finally reach its bottom? That’s one of the key question investors are hoping to get an answer to in the next few weeks. Last month the stock, which has underperformed the market and its peers over the past five years, formed what traders refer to as a “double bottom” which often suggests that the market has drawn a near-term line for how low the stock should go relative to its value. The stock has nevertheless been one of the better performers in the transportation sector and the overall market. Currently down 13% year to date, FedEx has bested the 23% decline in the S&P 500 index. The company has also benefited from both positive revenue and EPS revision over the past thirty days. Estimates at Refinitiv is now expecting EPS of $6.84 per share on $24.55 billion in revenue, implying year-over-year increases of 37% and 9% respectively. Notably, this is despite the fact that the company continues to struggle with labor issues and costs at FedEx Ground. On Thursday investors will want to hear that same level of optimism, namely about profitability improvements among FedEx’s various segments.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.