Stocks fell slightly today as profit warnings from major corporations continued to roll in. The Dow, S&P, and Nasdaq Composite all endured losses through noon.
General Motors (NYSE: GM) got things started when it warned investors today that manufacturing issues in Q2 would significantly impact net income for the quarter, drawing it down to $1.6 billion – $1.9 billion. That’s much lower than the initial $2.5 billion consensus estimate. GM managed to eke out a small gain this morning nonetheless after the news broke before shares ultimately retraced.
Micron Technology (NASDAQ: MU), on the other hand, plummeted over 5% after the chipmaker revealed dismal guidance in its earnings report last night.
“Near the end of [the quarter] we saw a significant reduction in industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone,” Micron CEO Sanjay Mehrotra said.
“These consumer markets have been impacted by the weakness in consumer spending in China, the Russia-Ukraine war, and rising inflation around the world.”
Mehrotra expects smartphone chip sales to shrink by 5% for the rest of the year. Analysts were anticipating 5% growth by comparison.
MU shares unsurprisingly sunk in response as losses spread across the industry. Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) both fell over 3%. Taiwan Semiconductor (NASDAQ: TSM) even outpaced MU, sliding 6.5% on the day.
But the biggest loser of the morning session was, without a doubt, Kohl’s (NYSE: KSS), which cratered 20% after the retailer cut its outlook for fiscal Q2. The company said it recently terminated talks to sell the business as well due to a worsening retail landscape.
It’s been a day of bad news. Will that translate to a broader market decline, though? UBS Private Wealth Management director Greg Marcus seems to think it could if enough stocks disappoint.
“Consensus estimates for 2022 and 2023 remain largely unchanged from the start of the year, even though stock prices have declined considerably since then. Weak guidance could finally force cuts to consensus earnings estimates, which would likely add further downward pressure on stocks,” Marcus warned.
He’s right. Rate hike and recession talk aside, a clear reduction in earnings across the board from America’s top stocks would certainly lump bearish pressure onto the market. And, with stocks falling alongside long-term Treasury yields, investors may be giving up on the “bad news is good news” narrative.
Severe guidance revisions call into question whether the coming recession will be a long one or not. Yes, the Fed will eventually drop rates substantially lower again, but when? After two years of excruciating economic pain?
Reality is starting to sink in that this bear market is here to stay. If the major indexes experience another bad day (like last Tuesday), the short-term trend could easily nosedive, dragging stocks below their recent lows in the process.
That’s not what bulls want to be thinking about over a long holiday weekend. But it’s the kind of thing that’s on every trader’s mind with the yearly lows so close by, serving as the last line of defense.
