The stock market sold off this week as Tuesday's consumer price index came in hotter than expected, signaling Fed rate hikes will remain high and go on for longer than previously thought. The major indexes dived below their 50-day moving average. Adobe plunged on mixed results and a $20 billion acquisition. Oracle skidded on flat profit.
Stock Market Slumps
The Dow Jones, S&P 500 and Nasdaq all plunged below their 50-day lines Tuesday following the hot CPI report, then kept falling below other key levels. Treasury yields are on the cusp of hitting long-term highs. Energy prices were volatile.
Hot Inflation, Weak Economy
The consumer price index for August dealt a setback to hopes that inflation will quickly and painlessly retreat. The headline inflation rate did ease to 8.3% from 8.5% in July, and the CPI rose a slim 0.1% on the month. But outside falling gas prices, the news was all bad. Food prices jumped 0.8% on the month and 11.3% from a year ago. Core inflation, excluding food and energy, accelerated to 6.3% from 5.9%, with a hefty 0.6% monthly increase. Prices of nonenergy services, like rent, medical care and transportation, rose 0.6% from July and 6.1% from a year ago, which was the biggest increase in 31 years. Even core goods prices showed unexpected strength, rising 0.5% on the month and 7.1% from August 2021.
The producer price index kept hope alive, as wholesale prices slipped 0.1%, bringing the annual increase down to 8.7%, the lowest in a year.
But concern about sticky inflation reared its head again on Thursday amid more signs of a tight labor market. New claims for jobless benefits fell 5,000 to 213,000, the lowest since May. Continuing claims, which saw a big downward revision of 72,000 for the week of Aug. 27, edged up 2,000 to 1.403 million.
Economic indicators are showing strength in all the wrong places — inflation and the job market. Yet overall growth appears tepid. Retail sales rose a better-than-expected 0.3% in August, but July's initially reported 0.4% gain was revised away to an unchanged reading. Excluding autos and gas, retail sales rose 0.3% in August, half the expected gain. Meanwhile, the Philadelphia Fed's regional manufacturing survey index unexpectedly fell into negative territory amid a contraction in new orders.
Adobe Stock Tumbles On Big Acquisition
Adobe stock fell nearly 17% Thursday to its lowest level in over two years after it announced plans to buy startup Figma for $20 billion in cash and stock. It's the largest-ever acquisition for the digital media and marketing software firm. Analysts expressed concern that Adobe is overpaying for Figma, which makes a web-based collaborative design platform. Adobe also delivered mixed quarterly results and guidance. It topped Wall Street's earnings target for its fiscal third quarter ended Sept. 2 but sales were a tad below views. Its outlook for the current quarter beat estimates for earnings but came up short again on revenue.
Rail Strike Averted?
A potential rail workers strike that could have cost the U.S. economy around $2 billion per day seems to have been averted. A tentative deal was reached early Thursday between unions and railway management, heading off a strike that could have started Friday. Everything from the transportation of food to lumber and coal could have come to a standstill. Union members must ratify the deal.
FedEx Earnings
After the close, FedEx reported fiscal first-quarter earnings fell 21% vs. a year earlier, crushing views for an 18% gain. Revenue rose modestly but slightly missed forecasts. The shipping giant also pulled fiscal 2023 guidance and announced sweeping cost-cutting measures as it faces declining shipping volumes. FedEx had been scheduled to release Q1 results on Sept. 22.
FDX stock plunged 15% in overnight trading. Archrival UPS sank 5%.
Steel Stocks Melt On Warnings
Worries about steel industry oversupply turned to reality this week. Nucor warned on Q3 earnings amid lower-than-expected shipments and softer pricing, while U.S. Steel offered below-consensus EPS guidance, citing "market headwinds that accelerated" during Q3. U.S. Steel idled some capacity due to market conditions and elevated imports. But Steel Dynamics, which has been ramping production at its new Sinton, Texas, facility, said it's on track to surpass estimates, thanks partly to higher shipments. Steel demand is broadly holding up in automotive, construction, industrial, and energy sectors, Steel Dynamics said. Still, the big steel stocks fell 9%-11% on Wednesday after Nucor's warning. On Thursday, STLD stock managed a slim gain, but X stock lost more ground after their earnings updates.
Oracle Tumbles On EPS Miss
The business software giant's EPS was flat for a second straight quarter. Revenue jumped 18% to $11.4 billion, beating views. It was the first quarter with a financial contribution from medical records company Cerner, which Oracle acquired for $28 billion. Excluding Cerner, revenue grew a healthy 8%. Oracle is investing heavily to accelerate cloud revenue growth as it also moves to modernize health care information technology. Shares sold off.
Harsh Market Week, Now Here Comes The Fed; 5 Stocks Holding Up For Now
Google Fines, Legal Woes Mount
The European Union's General Court upheld most parts of a 2018 decision by the EU competition regulator that fined Google-parent Alphabet $4.33 billion for allegedly abusing the market dominance of its Android operating system for mobile phones. The case was the biggest of three antitrust fines totaling more than $8 billion that the EU has levied against Google since 2017. The court's decision can still be appealed to the EU's top court. A U.S. federal judge ruled Google must face an antitrust suit brought by several states related to online ads. Meanwhile, South Korea fined Google $500 million and Meta Platforms $220 million over privacy violations.
News In Brief
General Electric said continued supply-chain issues are pressuring GE's cash flow.
Twitter shareholders, as expected, overwhelmingly approved Elon Musk's $44 billion, $54.20 takeover bid. Meanwhile, a disgruntled former employee didn't offer any bombshells in his congressional testimony. On Oct. 17, a five-day trial begins in Delaware Chancery Court, to decide whether Musk must go ahead with the deal.
Apple iPhone 14 series smartphones went on sale Friday following a week of preorders. Analysts say preorder activity was strong, especially for the higher-end Pro models, which start at $999.
