Strong Earnings Boost Stock Market; Nike Recession Play; Expect No Micron Miracles

Stock market indexes climbed Wednesday, adding to the previous session’s modest gains after well-received blue chip earnings reports. Dow Jones component Nike (NKE) and shipping giant FedEx (FDX) rallied despite mixed metrics, suggesting that oversold market conditions are now in play, just in time for a Santa Claus rally.

X

The Dow Jones Industrial Average rallied 1.1% in the first hour while the S&P 500 added 1.0%. Small caps attracted healthy buying interest, lifting the Russell 2000 nearly 1.4%. The Nasdaq composite matched blue chip gains, also up 1.1%. But Nasdaq and NYSE volume fell compared with the first hour on Tuesday.

The 10-year Treasury note yield slid less than 1% to 3.65%. Crude oil rallied more than 2% to a two-week high at $77.88 per barrel. And Asian markets were mixed while bulls took control in Europe, lifting many bourses more than 1%.

December consumer confidence surged to 108.2, much higher than analyst estimates, indicating greater optimism about the economic future. The recent drop in inflation may be driving these higher numbers.

On the flip side, November existing home sales failed to meet 4.20 million expectations, reporting just 4.09 million sales. Sales have now fallen for 10 straight months. Homebuilder exchange-traded funds traded higher despite the news.

In the crypto world, Bitcoin stalled near two-week lows under $17,000 while Coinbase (COIN) eased off Tuesday’s all-time low at 34.35.

The S&P 500 and Nasdaq are trading below their 50-day and 200-day moving averages. Meanwhile, the Dow is holding above those levels but testing them for the first time since early November.

Given persistent weakness, IBD has dropped its market rating to uptrend under pressure. Investors should raise cash at this time, keeping exposure below 20% of assets. Also consider moving to the sidelines completely and resetting for the 2023 market.

Stock Market: Time To Buy Nike?

Nike reported a fiscal 2023 second-quarter profit of 85 cents per share on a 16.7% revenue surge to $13.3 billion, beating top- and bottom-line estimates. It also raised third-quarter revenue guidance. Waning currency and supply headwinds contributed to the upbeat outlook, lifting the sports apparel giant more than 13% in the first hour.

Profit margins shrunk less than expected but high inventories still weighed on results. The company also warned that inventory markdowns will continue through the current quarter, which stretches to the end of February. Nike now values that supply at $9.3 billion, up 43% year-over-year.

China revenue fell 3%, much worse than North America’s 30% surge, highlighting the lasting impact of zero Covid policies. However, it looks like Nike has finally gotten Asian headwinds under control, after several quarters of political and supply issues. It’s also managing the economic downturn well, raising hopes for a long-term bottom and higher prices.

Footwear stocks are traditional safe havens during recessions but Nike has failed to attract defensive buyers, at least so far.

But China’s emergence from lockdowns should improve local sales and bolster its bottom line. In addition, easing supply chain issues should lower costs because Nike makes 36% of its apparel in China factories.

Analysts are also seeing this light at the end of the tunnel, predicting 28% earnings growth in fiscal 2024, after a 20% contraction in the fiscal year that will end May 31.

MarketSmith metrics are modest across the board, with “C” ratings in many categories. However, group strength is surging in line with its safe-haven status, sharply outperforming the S&P 500. That could herald much stronger 2023 performance, especially if Nike holds Wednesday’s assault on the 200-day moving average.

Micron Red Ink And Chip Stock Pain

Micron Technology (MU) reports first-quarter 2023 earnings after the closing bell, with analysts looking for a loss of 2 cents per share on $4.14 billion in revenue. If met, it would mark an ugly turnaround compared with the $2.16 profit in the same quarter last year. MU stock is trading higher by 1.1% at this hour.

The PHLX semiconductor index has been pummeled in 2022. losing nearly 35% in reaction to shrinking demand, supply chain disruptions and general hatred of tech growth stocks. Micron has fared even worse, posting a 45% loss, additionally battered by a steep decline in memory chip prices.

Sadly, there’s little evidence that things will get better in the first quarter of 2023.

On Nov. 29, Micron warned that “pricing has trended well below what we thought it would be when we had our (September) earnings call.” MU stock has shed another 10% since that bearish comment and is trading near a two-year low.

Stock Market Movers And Shakers

The Innovator IBD 50 ETF (FFTY) rose 0.7% in the first hour, in line with the major stock market indexes.

FedEx rallied 3.4% in Wednesday’s stock market after a better-than-feared second-quarter earnings report for fiscal 2023. The shipping giant reported a profit of $3.18 per share, 36 cents higher than analyst estimates.

But revenue missed the mark, falling 2.9% year-over-year to $22.8 billion. Investors cheered an aggressive cost-cutting initiative that seeks to slash $1 billion in expenses, in addition to $2.7 billion in cuts announced in September. These measures are certain to include layoffs.

IBD 50 component Toro (TTC) gapped down after a mixed earnings report, dropping out of the buy zone and into a test of the 21-day line. TTC stock lost 3.2% in early trading.

TTC stock spent six weeks grinding through a narrow range after rallying above the 107.86 buy point of a cup with handle. It could still mount a successful breakout but will have to hold above the 7% sell zone, which starts near 102.

Also in the IBD 50, Box (BOX) has slipped back into the buy zone after a Dec. 12 breakout above a 29.55 buy point of a cup with handle. The pullback may be constructive because it looks like a classic bull flag that should attract strong buying interest. BOX stock gained 0.2% in the first hour.

Follow Alan Farley on Twitter at @msttrader.

YOU MAY ALSO LIKE:

What Is CAN SLIM? If You Want To Find Winning Stocks, Better Know It

IBD Live: Learn And Analyze Growth Stocks With The Pros

Looking For The Next Big Stock Market Winners? Start With These 3 Steps

Want More IBD Insights? Subscribe To Our Investing Podcast

Futures: After Ugly Week, Here’s What To Do