Stock Dives, Dow Jones Tests Lows on Hawkish Fed, Rising Bond Yields: Weekly Review

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


Stock market correction intensifies

Major indices continued to fall after the Federal Reserve signaled that aggressive rate hikes will continue despite mounting recession risks. The Dow Jones tested its June lows with the S&P 500 and the Nasdaq composite racing to their 2022 lows. Some of the last remaining growth leaders began to collapse. Treasury yields rose to new long-term highs. Crude oil fell significantly.

Fed shows no signs of slowing down

The Federal Reserve came out of Wednesday’s meeting with all its weapons in its fight against inflation. A third consecutive rate hike of 75 basis points was fully expected. Still, Wall Street was somewhat surprised by the Fed’s forecasts showing that the key federal fund rate could rise to a range of 4.25%-4.5% by the end of 2022 and 4.5%-4 in 2023. 75%. Investors get the message. The only question is whether the Fed made a mistake by being too aggressive. The lightning-fast 75 basis point rate hikes are coming as the Fed ramps up its balance sheet this month and cuts its holdings of government bonds and mortgages by up to $95 billion a month.

Ford warns delivery costs, unfinished vehicles

Ford Motor (F) warned in the third quarter, citing incomplete vehicles in inventory and rising costs amid inflation. But it maintained its full-year profit forecast and expected to complete and sell the vehicles in the fourth quarter, once the chip and other parts become available. In the third quarter, Ford expects to pay its suppliers $1 billion more than it anticipated to account for inflation. The partial gain pre-release surprised Wall Street. Supply chains were supposed to improve. And Ford appeared to weather the semiconductor shortages slightly better than… General engines (GM) lately. Ford shares plunged, with analysts questioning the automaker’s full-year outlook. GM shares also fell, despite a major EV deal Hertz (HTZ).

Costco Earnings Top, No Cost Increase

Costco Wholesale (COST) narrowly surpassed fourth-quarter earnings with a gain of 12%, while revenue grew in-line by 15% to $70.76 billion. Same store sales increased by 13.7%, or 10.4% excluding gasoline and currency movements. Costco said there will be no increase in membership fees yet, even when Walmart’s Sam’s Club announced in early August that it would increase the fees. COST fell sharply.

Homebuilders warn of more pain

Lennar (To lend KB Home (KBH) both beat quarterly earnings, while falling just a little short in revenue. Both noted decreasing demand, with prices expected to fall. Meanwhile, house prices bounced in August, but building permits continued to fall. Existing home sales fell to a two-year low in August, with prices beginning to fall month by month. Now that mortgage rates have risen above 6% in recent days, there is a greater chance of a housing shortage.

AutoZone tops, sees higher costs

AutoZone (AZO) on Monday beat fiscal estimates for the fourth quarter, with earnings per share up 13% and revenue up 9% to $5.3 billion. Both marked a slight acceleration from the previous quarter. Same store sales increased by 6.2%. Looking ahead, auto parts retailing is seeing higher inventory-related costs in the first half of fiscal 2023, mainly due to freight costs. Shares tumbled Monday, but were able to recoup losses.

News in brief

Dardena Restaurants (DRI) met fiscal Q1 EPS displays for an 11% decline. The Olive Garden parent company’s sales grew 6.1% and were slightly lacking, while same-store sales also lagged.

FedEx (FDX) announced plans to increase package costs and unveiled cost-cutting measures to save $2.2 billion – $2.27 billion in fiscal 2023, a week after reporting dire preliminary Q1 numbers

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

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