The Dow Jones Industrial Average posted its biggest loss since 2020 on Wednesday, 18 May 22.
This comes after Target, a major retailer warned of rising cost pressures, confirming investors’ worst fears over rising inflation following Walmart which started its brutal sell off on Tuesday with a 11% decline followed by another 7% decline on Wednesday as it too, grappled with surging inflation.
Walmart executives said on Tuesday that while some shoppers bought high-ticket items like game consoles and patio furniture in the latest quarter, others were switching to private brands from national brands, particularly in lunch meats, as they juggled higher costs. Walmart also confirmed that shoppers are buying smaller half-gallons of milk, down from gallon jugs.
Target reported operating margin of 5.3% which was well below expectations and nearly half of what was achieved in the same quarter in 2021, reflecting higher costs for freight and transportation. Its operating margin was 9.8% in the same quarter in 2021.
The stock market is still crashing
The Dow shed 1,164.52 points, or 3.57%, to 31,490.07, marking its biggest decline since June 2020. It was the lowest close for the Dow since March 2021. All 30 Dow stocks closed in the red.
The S&P 500 traded 4.04% lower to 3,923.68, also the worst drop since June 2020. The Nasdaq Composite slipped 4.73% to 11,418.15, which is the largest fall in the tech-heavy index since May 5. The selling was broad and intense on Wall Street with just eight members of the S&P 500 and three stocks in the Nasdaq 100 closing in the green.
With the indices already down for seven weeks in a row, we dive deeper into the Dow and the Nasdaq, review well-known names that have recorded significant recent declines and try to expand on the common reasons why:
16 Dow Jones stocks that dropped more than the index
With an overall 3.57% decline to the index and every single stock in the red, the Dow which comprises of the most prominent companies in a variety of industries saw its biggest declines from companies in industries that were either heavily reliant on its supply chain or were very likely to be significantly affected by inflation costs pressures.
Well-known names such as Walgreens Boots Alliance, Coca-Cola and Walmart plunged, with Walmart recording a 6.79% decline following through from an 11% decline on Tuesday. Procter and Gamble Co, Apple, Nike , Home Depot and Mcdonalds have all either reported quarterly earnings that warn of cost pressures and continued strain on its supply chain.
Some of these names such as Apple have also warned of impact on revenue in immediate quarters while Walmart saw its inventory ballooned significantly, reflecting price increases by suppliers and also consumers reducing discretionary purchases.
Top 20 declines on Nasdaq 100
One would have thought that Nasdaq would fare better as it was mostly made up of tech companies and many of them are service providers, however upon closer look, it seems like there are many companies who clearly would also be impacted in a similar manner as the companies in the Dow Jones Index.
| # | Company | Symbol | % Chg |
| 1 | Cisco Systems Inc | CSCO | (-16.70%) |
| 2 | Dollar Tree Inc | DLTR | (-14.93%) |
| 3 | Old Dominion Freight Line Inc | ODFL | (-13.15%) |
| 4 | Costco Wholesale Corp | COST | (-12.63%) |
| 5 | MercadoLibre Inc | MELI | (-11.01%) |
| 6 | Lululemon Athletica Inc | LULU | (-11.01%) |
| 7 | Okta Inc | OKTA | (-10.85%) |
| 8 | Zscaler Inc | ZS | (-10.43%) |
| 9 | Broadcom Inc | AVGO | (-9.92%) |
| 10 | Airbnb Inc | ABNB | (-9.07%) |
| 11 | Palo Alto Networks Inc | PANW | (-9.05%) |
| 12 | NVIDIA Corp | NVDA | (-8.99%) |
| 13 | Kraft Heinz | KHC | (-8.76%) |
| 14 | Marvell Technology Inc | MRVL | (-8.63%) |
| 15 | Amazon.com Inc | AMZN | (-8.51%) |
| 16 | Datadog Inc | DDOG | (-8.47%) |
| 17 | Walgreens Boots Alliance Inc | WBA | (-8.37%) |
| 18 | Advanced Micro Devices Inc | AMD | (-8.27%) |
| 19 | Tesla Inc | TSLA | (-8.06%) |
| 20 | Netflix Inc | NFLX | (-8.00%) |
With nearly 50 companies recording a greater decline than the average, we look at the 20 companies that have been hit the most, Cisco Systems had the unfortunate honour of topping the list with a nearly -17% decline. This was because it provided disappointing results and weaker than expected forward guidance due to supply chain woes as the networking hardware provider blames Covid-19 lockdowns in China and the war in Ukraine, asserting that the issues revolve around supply and not demand.
Companies like Dollar Tree, Old Dominion Freight, Costco Wholesale, Lululemon Athletica and Kraft Heinz recorded declines between 8% to 15% due to the inflation and supply chain constraint theme.
E-commerce players such as Amazon and Mercadolibre have disrupted traditional retail and caused the demise or decline of the weaker players as their overhead costs are significantly lower than the brick and mortar players. These companies have also attempted to build up its supply chain infrastructure to compete better and operate on a thinner profit margin. Unfortunately, these stocks were also not spared as some aspects of inflation such as wage and freight costs are unlikely to be fully mitigated.
With elevated inflation and a comfortably strong job market, it is likely that the US Federal Reserve will continue hiking interest rates to try and lower inflation. Many high growth companies such as Okta, Zscaler, Airbnb and Datadog are affected as higher interest rates lead to lower valuations.
Technology related manufacturing and chips companies such as Nvidia, Marvell, Broadcom, Advanced Micro Devices and Tesla which are viewed as high growth tech companies and are also fundamentally vested in a smooth supply chain also saw huge hits to its share prices on similar concerns.
Is the stock market going to record its 8th straight week of decline?
We clearly do not know if the stock market is going to record its 8th straight week of decline or when it will stop. The market has seen extremely high volatility and intraday stock ranges have been large.
Stock price performance after earnings results is also pretty much a coin flip and many stocks has been hit as companies fall below expectations and also downgraded their forecasts for the rest of the year. Many major blue chips have not been spared by the global macro situation causing elevated levels of inflation and affecting its supply chain.
While there looks like there seems like there may be a turnaround soon as the US April’s CPI showed that inflation decelerated slightly, it is not clear yet when inflation will decrease meaningfully, if at all. Hence at this point in time, it may be wiser to be a long term investor and sleep peacefully at night rather than try and capitalise on the volatility.
If you’re looking to add positions into your long term portfolio, join Alvin at his upcoming webinar to learn how Dr Wealth picks stocks for our portfolio.
