The stock market moved into a correction on Wednesday as the Federal Reserve signaled that rates would stay higher for longer amid a stronger economy. Treasury yields skyrocketed. A United Auto Workers strike looked set to intensify with the union still far apart from automakers on a new deal with General Motors, Ford and Stellantis. Cisco Systems will buy database and security software maker Splunk for $28 billion. Instacart and Klaviyo opened to strong gains after their IPOs priced well, but shares fell back toward the offering price amid the weak market. Crude oil prices backed off 2023 highs.
Stock Market Now In Correction
With the indexes breaking further support levels and more and more leading stocks breaking lower, the market moved into a correction Wednesday after the Federal Reserve gave a hawkish rate outlook. Treasury yields soared.
Fed Outlook More Hawkish
The Federal Reserve took a hawkish leap on Wednesday, using its quarterly projections to pencil in a year-end 2024 federal funds rate that's a half-point higher than policymakers signaled in June. That implies just one quarter-point rate cut next year from current levels. While the Fed is still signaling one further rate hike this year, markets see odds of that happening as below 50%. But Fed chair Jerome Powell made clear that the Fed is in no rush to hike again. He also was pleased about three straight months of "good inflation readings," but said the Fed will need to see six months to be convinced. The Fed sees stronger economic growth in 2024 and still pegs core PCE inflation at 2.6% next year. But Powell signaled he doesn't have much faith in these new projections. There's a good chance the economy and inflation will both soften and the Fed will cut more than expected.
Recent economic data gave some conflicting signals for the Fed. Initial claims for jobless benefits dived 20,000 to 201,000, the lowest since January, signaling labor market strength. But existing-home sales and housing starts fell, while the Philly Fed manufacturing index unexpectedly signaled contraction.
Cisco Plunks Down $28 Billion For Splunk
Cisco Systems will buy the data analytics and cybersecurity firm for $157 a share in cash, a 31% premium to the Splunk share price on Sept. 20. Cisco will pay a $1.5 billion termination fee if the transaction does not close by March 2025. CSCO stock fell solidly while Splunk soared.
UAW Strike Expands
A week after the United Auto Workers strike vs. Ford, General Motors and Stellantis kicked off, the UAW announced significant progress with Ford, but will strike at another 38 facilities owned by GM and Stellantis. One of the major sticking points between the UAW and the three auto giants is workers' wage increase. The union is looking for a 40% pay increase over four-and-a-half years. The automakers have offered a 20% increase over the length of the agreement. However, investors don't seem too worried by the strikes.
What To Do Amid The Correction; Is Tesla The Next Leader To Crack?
IPOs Fade After Strong Start
Grocery delivery specialist Instacart and marketing automation software firm Klaviyo came public during a tough market period. CART stock priced its IPO at 30, at the top of its recently raised range. KVYO stock also priced at 30, just above a recently raised range. Instacart got as high as 42.95 in Tuesday's post-IPO debut, closing at 33.70. But shares quickly came back to its IPO price. Klaviyo surged to 39.47 intraday Wednesday, backing off to end at 32.76. Shares pulled back Thursday. The IPOs follow chip design giant Arm Holdings, which rose solidly in its Sept. 14 debut but soon hit new lows, below its IPO price.
Conflicting iPhone 15 Sales Reports
Wall Street analysts were divided over how well Apple did with early sales of its iPhone 15 handsets. The new smartphones went on sale Friday after a week of preorders. Apple stock rose after Morgan Stanley and Wedbush Securities described initial iPhone 15 presales after the company announced the new phone on Sept. 12 as "solid" and "strong," respectively. But shares fell two days later when UBS said demand for the new handsets was "mixed at best." BofA Securities said longer delivery wait times for the top-of-the-line iPhone 15 Pro Max likely had more to do with supply constraints.
FedEx Earnings Strong
FedEx earnings per share rose 32% in fiscal Q1 2024, ending four quarters of double-digit declines. Revenue fell 6.5% to $21.7 billion, just shy of views. FedEx raised the low end of its core EPS forecast, but now sees flat revenue vs. its prior goal of flat-to-slim growth. FedEx stock jumped Thursday, reclaiming its 50-day moving.
KB Home Falls On Sliding Prices
The homebuilder's fiscal Q3 EPS fell 37% while sales declined 14% to $1.58 billion, but that was more than expected. Average selling prices fell 8% to a $466,300, less than expected. Rising mortgage rates are weighing on demand and affordability, with rates spiking late in the week on a hawkish Fed outlook. KB Home fell modestly to a three-month low.
News In Brief
AutoZone reported a 15% EPS gain in the August-ending Q4, with revenue up 6.4% and same-store sales up 4.5%, all beating views. Shares of the auto parts retailer rose on earnings, edging higher for the week.
Darden Restaurants posted a 14% EPS gain with revenue up 11.6% and same-store sales up 5%, including a 6.1% comp gain for Olive Garden. But shares fell slightly, hitting four-month lows.
Boston Scientific guided to 8% to 10% compound annual sales growth, on an organic basis, over the next three years. Shares briefly broke out. Boston Scientific stock rose modestly for the week.
Novo Nordisk fell after an FDA inspection report showed the Danish drug giant discovered several types of bacteria at a Rybelsus manufacturing plant. Rybelsus is a diabetes pill that uses the same active ingredient as diabetes-fighter Ozempic and weight-loss drug Wegovy. Novo Nordisk says it has since fixed the issues and the plant is continuing to produce medicine.
CrowdStrike laid out new operating targets for the next five to seven years. It aims to reach $10 billion in annual recurring revenue from $2.9 billion this year, while raising margin targets substantially. Also, CrowdStrike announced pricing for its Charlotte generative artificial intelligence upgrade. Shares initially rose but reversed lower.
Broadcom fell after The Information said Alphabet unit Google could drop Broadcom as its supplier of artificial intelligence chips as soon as 2027. Some analysts speculated that Google was using the article as a negotiating tactic to get better pricing for AI processors.
