With the Dow Jones Industrial Average logging its fifth straight week of declines, I think it’s fair to ask if the bull market is over. Rising interest rates and higher inflation has finally done something that even the pandemic couldn’t manage to do over the past two years. The dip-buyers, meanwhile — a cohort the market could once rely on — are now nowhere to be found. It’s also worth asking whether investors, even the most optimistic ones, can muster up the urge to buy stocks while they are clearly on sale.
These questions don’t have easy answers, given the number of variables which are still at play, including concerns around the Fed’s tighter stance on monetary policy, interest rates and rising inflation, which stands at 40-year highs. Geopolitical tensions between Russia and Ukraine certainly haven’t helped an environment that was already sputtering from supply chain disruption. Now the prospect of higher gas prices, and other rising commodity costs, only add to the uncertainty.
On Friday the Dow Jones Industrial Average declined 229.88 points, down 0.69% to end the session at 32,944.19. The blue chip index was dragged down by shares of Apple (AAPL), Salesforce (CRM), Microsoft (MSFT) and IBM (IBM). Now down 8.5% year to date, the Dow has now suffered declines in five straight weeks. The S&P 500 index lost 55.21 points or 1.3% to close at 4,204.31, while the tech-heavy Nasdaq Composite Index lost 286.16 points, 2.18%, to close at 12,843.81.
For the week, the S&P 500 lost 2.3%, the Dow 1.6%, and Nasdaq 2.8%. The Nasdaq on Friday was under heavy pressure from a 5% and 4% declines, respectively, in Tesla (TSLA) and Netflix (NFLX), among notable decliners. The declines in the high-value stocks are driven by fears of raising rates which the Fed is expected to enact later this month.
To be sure, given that rates have been at near zero for the past two years, any increase would still be considered low. However, the effect of the increase could have a snowball effect on how consumers purchase goods and services, since an increase will lead to higher borrowing costs. The market is also worried about the likely combination of slowing growth and runaway inflation, which is referred to as stagflation.
As it relates to tensions between Russia and Ukraine, President Joe Biden on Friday called for a suspension of normal trade relations with Russia. This is aimed to economically impact Russia for its unprovoked attack against Ukraine. It remains to be seen whether sanctions can show any effect in terms of de-escalation. But as we saw last week, investors are unwilling to hold stocks over the weekend in fear that geopolitics could worsen. That’s likely why the dip-buyers have gone away.
As for earnings, here are the stocks to keep an eye on for the coming week.
Coupa Software (COUP) – Reports after the close, Monday, Mar. 14
Wall Street expects Coupa to earn 5 cents per share on revenue of $185.68 million. This compares to the year-ago quarter when it earned 17 cents per share on revenue of $163.54 million.
What to watch: Shares of Coupa, a provider of a cloud-based corporate spend management software, have declined more than 20% over the past thirty days, while posting 55% declines in six months. And on a year-to-date basis, the stock has lost more than 30% of its value, while the S&P has declined just 11%. The company has been dragged down by the recent punishment in tech stocks on fears of rising interest rates and inflation. Aiming to become a BSM (Business Spend Management) leader, Coupa makes money by analyzing large quantities of corporate transactional expense data, looking for spending patterns and areas of inefficiency. With its total addressable market measured at $56 billion and growing, Coupa’s platform helps customers with actionable insights that can lead to improved inventory management, smarter purchasing decisions, while lowering expenditures. But concerns about slower growth and Coupa’s valuation has kept new investors away. The company on Monday can change that narrative by delivering a top- and bottom line beat, along with confident guidance.
Accenture (ACN) – Reports before the open, Thursday, Mar. 17
Wall Street expects Accenture to earn $2.37 per share on revenue of $14.65 billion. This compares to the year-ago quarter when earnings came to $2.03 per share on revenue of $12.09 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. The stock has fallen 10% over the past month, including 25% year to date, compared to 10% 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 transition. In the most-recent quarter, its revenue grew 27% year over year, accelerating from previous two quarters by six percentage points and three percentage points, respectively. 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 whether (and how soon) Gartner’s prediction will prove true.
FedEx (FDX) – Reports after the close, Thursday, Mar. 17
Wall Street expects FedEx to earn $4.65 per share on revenue of $23.44 billion. This compares to the year-ago quarter when earnings came to $3.47 per share on revenue of $21.51 billion.
What to watch: Amid what appears to be short-term headwinds related to labor shortages and supply chain bottlenecks, FedEx stock has suffered immensely over the past two quarters. The stock has suffered declines of 9% and 15% in the respective one month and six months, while falling 16% over the past year. Currently down 15% year to date, and perceived as being mis-managed in comparison to UPS (UPS), reports suggests that the company could be the target of an activist investor. “That underperformance versus UPS, particularly given they are similar sizes when it comes to revenues, but obviously the makeup of their businesses is quite different from a profit/margin side,” noted David Faber of CNBC. But that’s not the first time report of activism have been rumored. The company has taken aggressive steps to address its many challenges, including labor shortage. The question is, whether its efforts will yield meaningful improvements to the bottom line. In other words, the company has a lot of prove on Thursday. Not only must FedEx beat on the top and bottom lines, it must also guide in a manner that suggests that the improvements shown will be sustainable.
GameStop (GME) – Reports after the close, Thursday, Mar. 17
Wall Street expects GameStop to earn 84 cents per share on revenue of $2.22 billion. This compares to the year-ago quarter when earnings were $1.34 per share on revenue of $2.12 billion.
What to watch: What does GameStop want to be? Does the brick-and-mortar video game retailer even know? That’s the question investors are faced with as it appears the company is once-again trying to re-invent itself as it has done over the last five years. Digital downloads have hurt the company’s primary business model and revenues and cash flow. Previous attempts to pivot into stronger growth areas have come with mixed results. However, the company’s latest attempt, which involves NFT digital asset marketplace and crypto gaming, could provide a power boost, so to speak. The company must still answer a very important question: how will it work? GME recently formed a partnership with Immutable X, which — according to the announcement related to the gameplay — will grant up to $150 million in IMX tokens to GameStop upon the achievement of certain milestones. It is still unclear how successful this latest pivot will become. And while GameStop deserves credit for trying all it can to remain relevant, at some point it must show it has found the right formula.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.