Stocks were punished on Friday to end the post-Thanksgiving trading session, booking sharp losses for the day and for week. Fears surrounding a new, heavily-mutated variant of Covid-19 drove investors towards the exits and looking for save havens. There weren’t many to find, however, as oil prices, bond yields and crypto also took it on the chin Friday.
The Dow Jones Industrial Average suffered its worst day of the year, plunging 905.04 points, or 2.53% to close at 34,899.34. The S&P 500 index lost 106.84 points, or 2.27%, to end at 4,594.62. As it stands the S&P, which fell 2.5% for the week, the biggest drop since October 2020, has lost a key level at 4,600. The tech-heavy Nasdaq Composite Index declined by 353.57 points to close at 15,491.66, losing 2.23%. The Nasdaq fell 3.5% this week, marking its worst weekly performance since February.
All told, in was indeed a “Black Friday” for all three major averages which suffered their worst post-Thanksgiving trading on record. Omicron, the new, heavily-mutated variant of Covid-19 identified in southern Africa, is now seen as a legitimate threat towards the global economic recovery. There are now strong concerns that the pandemic may yet get worse. And this may spark renewed safety measures such as social distancing and increased travel restrictions.
Is this decline the start of a bear trend or is this a new buying opportunity? Analysts at Wells Fargo sees opportunity to benefit. "We would advise investors to look past some of these near-term issues and seek to take advantage of weakness by adding to equities at the expense of fixed income," Wells Fargo says. "From a technical standpoint, the S&P 500 Index remains in an uptrend. The next levels of support to watch should be the 50-day moving average (4,525) and the 200-day moving average (4286).”
Likewise, Bitcoin which hit its all-time high of almost $69,000 earlier this month, has plunged more than 20% from that level. On the news of the new Covid variant, Bitcoin was even under more pressure, falling 8% to around $54,000. Meanwhile, when digging deeper into the various sectors, the worst-performing names in the S&P 500 were within transport, industrial, consumer, and energy stocks. By contrast, shares in healthcare and technology companies were notable outperformers, driven by renewed interest in stay-at-home stocks.
It remains to be seen how investors react next week as more information about Omicron emerges. There have been plenty of opportunities for the markets to plunge lower, say, into a 5% to 7% correction, but that hasn’t happened. “Buying the dip” has been the go-to strategy for investors who have been on the sidelines waiting for better entry points. It will be interesting to see if this trend continues. And that’s where investor patience and discipline for high quality stocks — despite the back-and-forth between price and value — have to kick into high gear.
As for earnings, here are the ones I’ll be watching this week.
Salesforce (CRM) - Reports after the close, Tuesday, Nov. 30
Wall Street expects Salesforce to earn 92 cents per share on revenue of $6.8 billion. This compares to the year-ago quarter earnings of $1.74 per share on revenue of $5.42 billion.
What to watch: Shares of Salesforce have been one of the more popular components on the Dow Jones Industrial Average, rising 30% year to date, besting the 25% rise in the S&P 500 index. The customer relationship management specialist is benefiting from strong tailwinds from digital transition as companies strive to get closer to the consumer and optimize operations. The company’s CRM platform which offers business intelligence insights also allows companies the ability to centralize data and personalize customer service. And with hybrid work becoming a part of the new normal, this increases an emphasis on collaboration software which is becoming more of an important enterprise tool. Salesforce has steadily grown its market shares in these end markets. But for the stock to keep rising at its impressive rate, Salesforce on Tuesday will need to report strong billings and booking metrics, combined with upside guidance.
CrowdStrike (CRWD) - Reports after the close, Wednesday, Dec. 1
Wall Street expects CrowdStrike to earn 10 cents per share on revenue of $363.53 million. This compares to the year-ago quarter when earnings were 8 cents per share on revenue of $232.46 million.
What to watch: CrowdStrike shares have fallen almost 20% over the past month, trailing the 3.5% rise in the S&P 500 index. The stock began experiencing selling pressure on Monday, losing more than 10% after Morgan Stanley analyst Hamza Fodderwala initiated coverage of the stock with an Underweight rating which is the equivalent of sell. While Fodderwala acknowledged the company’s growth from the shift toward digitalization and remote work over the past two years, while gaining a leadership position in endpoint detection and response (EDR) security, the analyst fears that competition will chip away at CrowdStrike’s early success. Fodderwala expects rivals to undercut CrowdStrike's prices by at least 15% to 20%, noting that this competitive headwind, along with a reduction in work from home, will impeded CrowdStrike's current pace of share gains. In other words, CrowdStrike has a lot to prove Wednesday and its guidance for the next two quarters will determine how the stock responds.
Splunk (SPLK) - Reports after the close, Wednesday, Dec. 1
Wall Street expects Splunk to lose 50 cents per share on revenue of $650.64 million. This compares to the year-ago quarter when the loss was 7 cents per share on revenue of $558.57 million.
What to watch: The machine data analytics company has seen its stock price fall almost 25% over the past thirty days, against a 3.5% gain for the S&P 500 during that span. And if you’ve bought and only held the stock over the past nine months and one year, your shares have lost 18% and 37%, respectively, trailing the S&P 500 index in each time frame. While the company understands customer behavior and can assess online end-to-end business transactions and deliver strong revenue growth, investors have shifted their focus on the company’s valuation. In that vein, the stock price — now trading at just 10 times revenue — appears more reasonable with fiscal 2022 revenue growth estimates calling for 22%. It’s also encouraging that the company coming off a quarter during which revenue grew 23% year over year, accelerating 7 percentage points sequentially. But for the stock to reverse course, the management team on Wednesday will need to convince a skeptical market that Splunk can continue to reaccelerate its growth rate and capture market share.
DocuSign (DOCU) - Reports after the close, Thursday, Dec. 2
Wall Street expects DocuSign to earn 46 cents per share on revenue of $530.63 million. This compares to the year-ago quarter when earnings were 22 cents per share on revenue of $383.92 million.
What to watch: Shares of DocuSign have suffered double-digit losses over the past few weeks, falling more than 11% compared 3.4% rise in the S&P 500 index. Since reaching its 52-week high of $314 DocuSign has lost 23% of its value. Enabling individuals and businesses the ability to digitize an agreement process has been a key factor in DocuSign’s rise during the pandemic as enterprises shifted to remote work. Aside from being the leader in electronic signatures, DocuSign aims to service the entire deal process, including supporting any action that is required once the agreements have been signed. In the second quarter, the company reported its total customer base crossed above the 1 million level. Year to date, DocuSign added about 160,000 new customers to its business, while its customer base rose almost 80% since the start of the pandemic. However, as vaccine distribution accelerates the market has grown concerned about DocuSign’s ability to maintain its impressive growth, particularly as it relates to revenues, platform sign-ups and free cash flow. Nevertheless, to reverse the negative downward trend in the stock price, DocuSign will have to issue strong revenue growth forecast for next quarter and fiscal year 2022.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.