Ongoing uncertainty from the collapse of Silicon Valley Bank (SIVB), which affected the banking sector, caused the stock market to sell off on Friday. The Dow Jones Industrial Average ended the session lower by more than 300 points, marking the index's worst week since June of last year.
Silicon Valley Bank, a tech-focused lender, was shut down following losses in its bond portfolio. It now ranks as largest failed financial institution since the global financial crisis in 2008. Aside from the fears that sparked the collapse, investors were also digesting better-than-expected employment data, which also raised concerns about the actions the Federal Reserve might take to battle inflation.
The closely watched February jobs report showed that 311,000 jobs were added, compared to the 223,000 that were expected. The strong data moved the unemployment rate to 3.6% from 3.4%. Digging deeper in to the numbers, average hourly earnings for February rose, although not as much as economists expected for both on a sequential and annual basis. The jobs data contributed to the volatility in Friday’s market action with investors worrying about what the Fed might do at its meeting later this month.
There is now a 51.3% chance that the Fed will hike rates by 50 basis points, according to the CME FedWatch tool. Although that probability was higher on Thursday, around 80%, investors weren’t taking chances. The Dow closed lower by 345.22 points, or 1.07%, to end the session at 31,909.64. The S&P 500 gave up 56.73 points, or 1.45%, finishing at 3,861.59. Meanwhile, with strong declines in tech heavyweights Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL) and Alphabet (GOOG , GOOGL) the Nasdaq Composite index declined 199.47 points, or 1.76%, to close at 11,138.89.
While Friday’s market declines could have been much worse, all three major benchmarks suffered weekly losses. The sustained strength in the economy continues to surprise many analysts, particularly as the Fed maintains its hawkish posture to get soaring cost of living under control.
The good news from the jobs report is that if offered some indication that inflation is in fact slowing down, evidenced by the smaller-than-expected gain in wages. Will that data point be enough to cause the Fed to remove its foot of the hiking gas pedal? It remains to be seen. In the meantime, for this week’s earnings, here are the stocks I’ll be watching.
Adobe (ADBE) - Reports after the close, Wednesday, Mar. 15
Wall Street expects Adobe to earn $3.68 per share on revenue of $4.62 billion. This compares to the year-ago quarter when earnings came to $3.37 per share on revenue of $4.26 billion.
What to watch: Adobe stock has declined 15% over the past six months, trailing the 3.66% decline in the S&P 500 index. Over the past 12 months, the shares have declined 25%, compared to the 8% decline in the S&P 500 index. Adobe shares have been punished amid the bear market correction despite the company benefiting from the massive secular digitization trend that is poised to remain hot over the next two years. Meanwhile, the company has executed impressively, producing strong earnings for the fourth quarter, including record revenue of $4.53 billion, which beat analyst expectations by nearly $30 million. Adobe announced a record $20 billion deal for Figma, a software company that has built its name as a forward-thinking and collaborative design platform, and was once seen as a formidable competitor to Adobe in the creative apps market.
“Adobe’s greatness has been rooted in our ability to create new categories and deliver cutting-edge technologies through organic innovation and inorganic acquisitions,” said Shantanu Narayen, chairman and CEO, Adobe. The combination of Adobe and Figma is transformational and will accelerate our vision for collaborative creativity.” As it has done in previous years, Adobe has taken a major competitor off the market and bringing it under its own umbrella. From an organic perspective, the company continues to benefit from strong new user adoption and subscription revenue. The management continues to be strategic in its long-term approach. On Wednesday investors will want to know how this deal can impact the top and bottom lines in the quarters ahead.
FedEx (FDX) - Reports after the close, Thursday, Mar. 16
Wall Street expects FedEx to earn $2.73 per share on revenue of $22.75 billion. This compares to the year-ago quarter when earnings came to $4.59 per share on revenue of $23.64 billion.
What to watch: Shares of the transportation giant have risen 20% year to date, besting the 2% rise in the S&P 500 index. Currently trading at $201, the stock has gone an incredible run after dropping to $140 from from $204. Amid macroeconomic weakness in the U.S. and Asia as well as service challenges in Europe, the company's three business segments have suffered due to lower shipping volumes. In particular, the Express segment has been in the spotlight and has showed some weakness. With 15 hubs, the company’s Express global network connects more than 99% of global GDP, according to the company’s statement. The company blamed weakness in the Express segment for the decline in Q2 revenue which fell 3% year over year to $22.8 billion, missing Street expectations by roughly $920 million. During the quarter, profits in the Express segments declined 64% year over year due to lower global volumes, though it was partially offset by an 8% package yield increase. Its management remains optimistic they can overcome these headwinds, identifying as much as $1 billion in additional cost savings and now expects to generate roughly $3.7 billion of total fiscal 2023 cost savings. On Thursday, FedEx will have to figure out how to regain the market’s confidence, particularly as it relates to profitability improvements among the company’s various business segments.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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