Stocks slipped Tuesday as investors remained worried about the economy and waited for the Federal Reserve to announce its next interest rate move. Bond yields also dipped as worries worsened.
The market is watching for inflation data to be released on Thursday, which could have a big impact on the Fed’s interest rate plans. If inflation slows, the central bank might be able to ease its tightening cycle.
1. Nike (NKE)
The Dow Jones industrial average today (Tuesday) plunged nearly 4%, taking the S&P 500 down to its lowest point of the year, as investors digested a report showing that inflation surged at its fastest pace in four decades. A weakened dollar and a surge in oil prices sparked new concerns about inflation that could lead the Federal Reserve to slow its rate hikes.
Nike (NKE) tumbled 12% after the athletic footwear giant announced that it had excess inventory on its books. Investors are focusing on inflation, as it can dampen expectations for future profits and is likely to cause stock prices to decline.
Inflation may have eased a little in October, but it still remains high and will most likely continue to rise over time. This is especially true if core inflation continues to rise at such a fast rate.
There are several key factors that can affect whether inflation stays high or declines, including food and energy costs. Gas prices, for instance, are down from a peak last March and should be reducing the impact of rising prices on consumers.
But other goods, like clothing, are still rising at a blistering pace. That could have an even bigger impact on the overall inflation figure if it lingers for too long.
A growing chorus of economists and business executives, including some in the Fed, are now saying that high inflation will be with us for at least a few years. It’s tied to chronic supply chain snarls that are affecting every industry, from shoes and furniture to meatpacking. These problems aren’t going to go away, and they’re likely to persist into 2022 at the earliest.
2. Boeing (BA)
Inflation concerns hit a fresh high as the dow jones today (NYSE: BA) declined, while all the major indexes retreated. The S&P 500, Nasdaq and Dow all lost 1% during a volatile trading session.
A report from Australia’s central bank earlier Tuesday raised rates by a quarter of a percentage point, saying “some further tightening” may be needed to bring inflation back down. That was a bit of a surprise to markets because it pointed to prices still rising too quickly for services, an area that the Fed has also been focused on.
The Federal Reserve has hiked interest rates by an average of a quarter of a percentage point since last June, and it is widely expected that they will continue to increase in the coming months. But, with core inflation accelerating to a 40-year high at 6.6%, some analysts are wondering how much further the Fed can go before the economy starts to show signs of slowing down.
Some experts have pointed to a recent report that showed employers advertised less than 9.6 million job openings in March, which would be the lowest level in more than two years and could indicate that the US is about to enter a recession. That could lead to a stock market sell-off and an increase in interest rates.
However, that wasn’t enough to stop the S&P 500 and the Nasdaq from climbing higher on Thursday. The tech-heavy Nasdaq gained 6%, its biggest gain in about four years.
It is important to note that Boeing’s revenue and P/S ratio have plunged in the past year, which was primarily due to the company’s 737 MAX grounding in March 2019 and the Covid-19 pandemic in 2020. However, the company has a significant backlog of airplanes that will help it to overcome these challenges in the future, and this should lead to improved revenue growth.
3. Johnson & Johnson (JNJ)
Johnson & Johnson (JNJ) is one of the best healthcare stocks for income investors. It has a history of raising its quarterly dividend for 60 consecutive years and the stock is expected to increase again next month.
This stock is trading at 22 times earnings, a bit below its 52-week low and it could be a good time to buy this health care company. Its pharmaceutical catalog is on the rise, and it has 99 drug indications in clinical development that will likely boost sales.
In addition to its pharmaceutical catalog, JNJ also has an impressive lineup of medical devices. Its MedTech segment includes products like contact lenses and wound closure solutions. It has more than $1 billion in annual sales from these products, according to the company.
Its pharmaceutical division is the largest segment of its business, accounting for nearly 50% of its pretax income. This division is growing thanks to the sales of drugs like Darzalex and Tremfya, which are used to treat multiple myeloma and psoriasis, respectively.
The company’s pharmaceutical division is a key reason why it has maintained its status as one of the best consumer staples stocks to own, even in an economic downturn. The company has increased its revenue for seven straight years and analysts expect it to do so again this year.
However, a big issue in the company’s first quarter was its decision to book a $6.9 billion charge as part of the settlement it agreed to in its lawsuit over its talc-based baby powder. This resulted in a net loss for the quarter, but it should be offset by a higher EPS figure. The company also said that the spinoff of its healthcare unit was still on track for later this year, which should be a positive development for investors.
4. Merck & Co. (MRK)
Inflation concerns pushed the dow jones today industrial average down more than 400 points today, with investors growing increasingly worried that a recession could be coming. The dow jones, along with the S&P 500 and Nasdaq composite indexes, has lost more than 21% of its value since January.
Pharmaceutical stocks were hit hard by the inflation data. Merck & Co (MRK) and Eli Lilly (LLY) both fell after the government said its Consumer Price Index rose 7.7% in October, which is down from 8.2% the month before.
Despite that, both companies’ profit margins and net income increased in the same period. That’s because their input costs remained stable, which meant they were able to increase prices of their products and stay ahead of the rate of inflation.
As a result, they’re able to keep their profits high and their stock price higher. They’re also able to pay out more of their earnings in dividend payments, which can make them more appealing to investors.
However, if inflation continues to increase at a faster pace than their earnings growth, it could start to negatively affect their bottom line. That would be especially bad for smaller and slower-growing pharmas.
The biggest challenge for these companies is that Medicare will soon require them to cut prices on drugs. That could cut into their profits and innovation.
That’s why investors may want to consider other drugmakers if they’re concerned about the impact of inflation on their investment returns. Some of these stocks include Merck & Co (MRK), Bristol Myers Squibb Company (BMY), and Johnson & Johnson (JNJ).
5. Intel (INTC)
The Dow Jones Industrial Average today (DJIA) and the S&P 500 index both sank on Monday following a report that inflation in May soared at its fastest pace in four decades. Inflation is the biggest concern for investors right now, as higher rates are squeezing consumers and companies, which can lead to a recession.
Inflation concerns are a big reason why the market is stuck in a range, according to Mark Haefele, chief investment officer at UBS Global Wealth Management. While Haefele said there is room for upside, he cautions that stocks remain expensive.
Intel (INTC), a leading semiconductor chip maker, dropped on Friday after the Fed stoked inflation worries with a report that showed prices increased at their highest pace in 40 years. Investors are pinning their hopes on the inflation report to convince the Fed to slow down its interest rate hikes, which are putting pressure on consumer spending.
Despite the stock’s recent pullback, Intel is still considered a “buy” for investors, says Lee Weiss, analyst at Morgan Stanley. But the semiconductor market isn’t as healthy as it once was and global competition has eroded Intel’s dominance in the chip industry.
Its biggest threat is Samsung Electronics, which has rolled out cheaper, faster chips to take share from Intel and its competitors. The company is also searching for a new CEO, which isn’t an easy task.
But the company’s upcoming 10 nanometer microchip could help drive its future, and it has an excellent growth story to tell. In spite of the weakness, INTC is currently trading at five-year lows, which makes it a good bargain for investors. But investors need to be careful, because if the company’s growth slows, investors may get disappointed.
On May 2, 2023, the Dow Jones Industrial Average dipped on inflation concerns, as rising prices for goods and services fueled concerns among investors about the potential impact on the economy and corporate earnings.
- What is inflation, and how does it affect the stock market?
Inflation refers to the rise in the general price level of goods and services in an economy over time. Inflation can affect the stock market by increasing the cost of production for companies and reducing consumer purchasing power. This can lead to lower corporate earnings and reduced economic growth, which can negatively impact stock prices.
- What factors contribute to inflation?
Inflation can be caused by a variety of factors, such as changes in the money supply, shifts in supply and demand, and increases in production costs. Inflation can also be influenced by external factors such as geopolitical events, natural disasters, and changes in global trade policies.
- How can investors protect themselves against the impact of inflation?
Investors can protect themselves against the impact of inflation by investing in assets that have historically performed well in inflationary environments, such as real estate, commodities, and stocks of companies that produce essential goods and services. Additionally, investors can consider investing in inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), which offer protection against inflation by adjusting their principal value based on changes in the Consumer Price Index (CPI).
- What is the role of the Federal Reserve in managing inflation?
The Federal Reserve has a dual mandate of promoting maximum employment and price stability, which includes managing inflation. The Fed uses a variety of tools, such as setting interest rates and controlling the money supply, to manage inflation and ensure price stability. When inflation is rising above the Fed’s target rate, the Fed may increase interest rates to help cool the economy and reduce inflationary pressures.
- Should I adjust my investment strategy in response to inflation concerns?
The decision to adjust your investment strategy in response to inflation concerns should be based on your individual investment goals and risk tolerance. While inflation can be a concern for investors, it is important to remember that inflation can also be a sign of a strengthening economy. It is important to maintain a diversified portfolio and consider the potential impacts of inflation on different asset classes before making any investment decisions. Additionally, consulting with a financial advisor can help you to develop a personalized investment strategy that takes into account your individual needs and goals.