Stocks Hit New Lows After Early Rally as Fed Hikes Key Rate
Here Are 3 Hot Things to Know About Stocks Right Now
- The Dow Jones Industrial Average fell more than 350 points Wednesday afternoon, hitting a new low for 2018 after the Fed announced it would raise rates by a quarter point.
- Micron Technology Inc. (MU) tumbled nearly 8% after the chipmaker cautioned that a glut in global semiconductor supplies, along with slowing smartphone demand, would hit fiscal second-quarter profit.
- General Electric Co. (GE) rose 5.3% following a report the troubled industrial conglomerate filed confidential plans to float its healthcare unit as it seeks to raise enough cash to maintain both its investment grade credit rating and its current dividend.
Wall Street Overview
Stocks hit new lows Wednesday afternoon as investors reacted to an announcement from the Federal Reserve that it would raise interest rates by a quarter point, despite increasing concerns of a global economic slowdown.
The Dow Jones Industrial Average dropped more than 350 points following the Fed’s announcement, hitting 23,323, a new low for 2018 and a decline of 1.49%. This is after the Dow started the day on a more positive note, rising 186 points, or 0.79%, to 23,862, before the Fed’s rate hike.
The S&P 500 and and the Nasdaq also fell into negative territory after gains in early trading of 0.73% and 0.53%, respectively. The S&P 500 and the Nasdaq both closed at 2018 and 52-week lows of 2,506 and 6,636, respectively.
The Fed on Wednesday lifted its key fed funds rate by 25 basis points to 2.5%. The Fed lowered its projections for 2019 as well, from three rate increases down to two.
In national news, Senate Majority Leader Mitch McConnell said Wednesday he would introduce a bill to fund the U.S. government through Feb. 8 and avoid partial shutdown.
Micron Technology Inc. (MU) tumbled 7.92% after the chipmaker beat fiscal first-quarter earnings expectations but missed on revenue, and cautioned that a glut in global semiconductor supplies, along with slowing smartphone demand, would hit second-quarter profit.
Micron said second-quarter sales would slump to between $5.7 billion and $6.3 billion, below consensus of $7.26 billion, and noted that gross margins would narrow to between 50% and 53%.
“We’re just going through an air pocket here related to primarily inventory adjustments as well as some seasonal, weak mobile demand, including mobile demand on the high end smartphones that is impacting some of our near-term visibility as well as the near-term outlook,” CEO Sanjay Mehrotra told investors on a conference call late Tuesday.
General Electric Co. (GE) rose 7% Wednesday following a report the troubled industrial conglomerate has filed confidential plans to float its healthcare unit as it seeks to raise enough cash to maintain both its investment grade credit rating and its current dividend.
Bloomberg reported Wednesday that GE was working with Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and Morgan Stanley on a deal that could create one of the world’s biggest listed healthcare companies with an enterprise value of around $60 billion.
GlaxoSmithKline PLC (GSK) said Wednesday it would combine its consumer health division with that of U.S. rival Pfizer Inc. (PFE) to create a new division with $13 billion in annual sales.
GlaxoSmithKline also said it would split its remaining pharmaceutical business into two separate divisions, one focused on over-the-counter drugs, the other on prescriptions and vaccines, following the joint venture creation with Pfizer. GlaxoSmithKline will also own 68% of the newly created group and has another £1 billion in divestments planned over the near term.
Pfizer said the deal would add $650 million in cost synergies and add to the company’s bottom line for the first three years of the formation. The company also said it would deconsolidate its healthcare business from quarterly and annual earnings once the transaction closes next year.
GlaxoSmithKline shares rose 2.6%, while Pfizer was up 0.7.
FedEx Corp. (FDX) fell 8.8% after the shipping giant’s fiscal second-quarter earnings beat expectations but the company lowered its outlook and said its international business “weakened” during the quarter.
“While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives,” CEO Frederick W. Smith said in a statement.
To cut costs, FedEx said it would be instituting buyouts, with costs of $450 million to $575 million expected in the fourth quarter of fiscal 2019. The company said that “similar programs are being considered for employees in international regions.” FedEx said it also would be reducing its international network capacity at FedEx Express.
FedEx said it expects adjusted earnings in fiscal 2019 of between $12.65 to $13.40 a share before certain year-end retirement plan accounting adjustments, down from a previous forecast of $15.85 to $16.45 a share.
Eli Lilly & Co. (LLY) rose 3.5% after the drug company issued a forecast for 2019 earnings and revenue above Wall Street estimates and boosted its quarterly dividend to 64.5 cents a share from 56.25 cents.
Eli Lilly said it expects adjusted earnings in 2019 of $5.90 to $6 a share, higher than estimates of $5.82 a share. Revenue was forecast at $25.3 billion to $25.8 billion – analysts expect $24.74 billion.
General Mills Inc. (GIS) posted adjusted earnings in its fiscal second quarter of 85 cents a share, beating estimates by 4 cents. Revenue of $4.41 billion missed forecasts of $4.51 billion. The stock rose 6.9%.