Stock Market Dives, Dow Jones Tests Lows On Hawkish Fed, Soaring Bond Yields: Weekly Review

The stock market continued to sell off, with the Dow Jones Industrial Average testing its June lows. The Federal Reserve announced another big Fed rate hike, and signaled that aggressive tightening will continue. Treasury yields skyrocketed, with the 10-year rate hitting an 11-year high. Ford Motor (F) warned of higher supply costs and tens of thousands of unfinished vehicles.


Stock Market Correction Intensifies

The major indexes continued to tumble after the Federal Reserve signaled aggressive rate hikes will continue, despite growing recession risks. The Dow Jones tested its June lows with the S&P 500 and Nasdaq composite racing towards their 2022 lows. Some last remaining holdout growth leaders began to buckle. Treasury yields spiked to fresh long-term highs. Crude oil fell significantly.

Fed Shows No Signs Of Slowing

The Federal Reserve emerged from Wednesday’s meeting with all guns blazing in its fight against inflation. A third-straight 75-basis-point rate hike was fully expected. Still, Wall Street was a bit surprised by Fed projections showing that the key federal funds rate may rise to a range of 4.25%-4.5% by the end of 2022 and reach 4.5%-4.75% in 2023. Investors are getting the message. The only question is whether the Fed erred on the side of being too hawkish. The rapid-fire 75-basis-point rate hikes are coming as the Fed ramped up balance-sheet tightening this month, reducing its holdings of Treasuries and mortgage securities by up to $95 billion per month.

Ford Warns On Supply Costs, Unfinished Vehicles

Ford Motor (F) warned on the third quarter, citing incomplete vehicles in inventory and spiraling costs amid inflation. But it maintained full-year earnings guidance, expecting to complete and sell the vehicles in Q4, as computer chips and other parts become available. In Q3, Ford expects to pay its suppliers $1 billion more than it had foreseen to account for inflation. The partial earnings prerelease surprised Wall Street. Supply chains were thought to be improving. And Ford was seen weathering the semiconductor shortages somewhat better than General Motors (GM) of late. Ford stock tumbled, with analysts questioning the automaker’s full-year guidance. GM stock fell as well, despite a big EV deal with Hertz (HTZ).

Costco Earnings Top, No Fee Hike

Costco Wholesale (COST) narrowly topped Q4 EPS views with a 12% gain while revenue grew 15% to $70.76 billion, in line. Same-store sales rose 13.7%, or 10.4% excluding gasoline and currency swings. Costco says a membership fee increase is not yet coming, even as Walmart’s Sam’s Club announced in early August that it was raising fees. COST fell sharply.

Homebuilders Warn Of More Pain

Lennar (LEN) and KB Home (KBH) both beat quarterly earnings views while just falling short on revenue. Both noted softening demand, with expectations for prices to decline. Meanwhile, August housing starts bounced, but building permits continued to tumble. Existing-home sales edged down in August to a two-year low, with prices starting to fall month to month. With mortgage rates soaring above 6% in recent days, more housing pain is likely.

AutoZone Tops, Sees Higher Costs

AutoZone (AZO) topped fiscal fourth-quarter estimates Monday, with EPS up 13% and sales up 9% to $5.3 billion. Both marked a slight acceleration from the previous quarter. Same-store sales were up 6.2%. Looking ahead, the auto parts retailer sees higher inventory-related costs in the first half of fiscal 2023, mostly due to freight costs. Shares tumbled Monday, but pared losses.

News In Brief

Darden Restaurants (DRI) met fiscal Q1 EPS views for an 11% drop. The Olive Garden parent’s revenue grew 6.1%, slightly missing, with same-store sales also falling short.

FedEx (FDX) announced plans to hike package fees and unveiled cost-cutting measures to save $2.2 billion-$2.27 billion in fiscal 2023, a week after reporting terrible preliminary Q1 figures.

Nvidia (NVDA) unveiled its GeForce RTX 40 Series graphics processing units aimed at gamers and content creators. At its fall GTC conference, the chipmaker also revealed new cloud services to support artificial intelligence workflows.


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