Shares in General Electric (GE 1.12%) were down by 4.7% in early trading today. There are two factors to focus on. The first is that the move comes on a generally weak day for the market.
The second factor to consider is CEO Larry Culp's recent admission that GE's supply chain remains challenged.
The broader market index got spooked by stronger-than-expected inflation data in August. In a surprise development, the consumer price index rose by 0.1% on a sequential-month basis in August, after being flat in July. On a year-over-year basis the index rose 8.3%. So the market is now pricing in a more aggressive rate hike from the Federal Reserve at its next meeting.
That's bad news for an indebted company like GE. It's also bad news because it may choke off demand in the economy, not least for the kind of high-ticket products (aircraft engines, wind and gas turbines, healthcare imaging) GE makes -- products often financed with debt.
Supply chain problems have hit GE across its aviation, renewable energy, and healthcare segments in 2022. Aircraft engine deliveries are behind schedule, GE HealthCare profit is likely to be $100 million to $300 million lower than initially expected in 2022, and GE Renewable Energy earnings this year will be lower than initially expected.
Along with the rest of the market, GE investors will be hoping inflation moderates in due course. As for problems with the supply chain, they're obviously frustrating, not least as investors were hoping for some better news on the subject in the second half. Still, GE stock continues to look like a good value, even if near-term risk is rising.