A broad cross-section of stocks slumped this week, as a decision by the Federal Reserve Bank brought the macroeconomic challenges front and center.
Among the casualties, plant-based meat specialist Beyond Meat (BYND 9.15%) was off by as much as 20.1% this week, daily fantasy sports and online gambling leader DraftKings (DKNG -1.12%) was down as much as 16.7%, and sustainable footwear maker Allbirds (BIRD 4.63%) was down as much as 13.5%, according to data provided by S&P Global Market Intelligence. As of the close of the trading day on Thursday, the trio was still trading lower, down 16.7%, 16.2%, and 12.4%, respectively. The broader market indexes were also lower this week, with the S&P 500 down 3% since last Friday's close, while the Nasdaq Composite declined 3.3%.
There was very little in the way of company-specific news behind the sell-off, but the Fed's comments and reduced growth forecasts that came with the rate hike unnerved some investors, sending these consumer-facing stocks lower.
The Central bank has made it abundantly clear that it will use all the means at its disposal to bring runaway inflation under control, so investors weren't surprised by the Fed's sizable rate hike. At the conclusion of the Federal Open Market Committee's two-day meeting on Wednesday, it announced an interest rate hike of 0.75%, its third since June. The move brought the benchmark overnight lending rate, also known as the federal funds rate, to a range of 3% to 3.25%, its highest level since early 2008.
In justifying the move, the Fed said "recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low." The statement also reiterated the Fed's resolve to combat high inflation, saying, "The committee is strongly committed to returning inflation to its 2% objective."
The Fed also signaled that it expects to continue to raise interest rates well into next year, suggesting that the federal funds rate could climb to 4.4% by the end of the year, rising to 4.6% in 2023.
The widely anticipated rate hikes came with an unexpected casualty, which sent Wall Street into a tailspin. In its Summary of Economic Projections, the Fed lowered its projections for gross domestic product and now expects growth of just 0.2% in 2022.
This decision comes at a tough time on Main Street. Just last week, the Bureau of Labor Statistics released its monthly read on inflation. The widely followed Consumer Price Index rose 8.3% year over year in August, confounding economists who had predicted an 8.1% increase.
That's not to say the macroeconomic picture is the only thing impacting these companies' stock prices. New Jersey's Division of Gaming Enforcement reported that total gaming revenue in the state climbed 10.1% in August, suggesting that consumer spending is holding up -- at least so far. That's good news for DraftKings, which operates in the Garden State.
There were a couple of interesting developments for Beyond Meat. A high-profile test of Beyond Carne Asada Steak will begin next month at a number of Yum! Brands Taco Bell locations in Ohio. One of the big takeaways from the announcement was that there wouldn't be an upcharge for the plant-based meat, suggesting that the company was able to achieve cost parity with flank or skirt steak, the types of meat used in most carne asada recipes. Being able to offer plant-based products at competitive prices would be a boon to Beyond Meat.
On the downside, a couple of Wall Street's finest lowered their price targets on Beyond Meat, citing declining retail sales and difficult comps.
All things considered, the macroeconomic picture seems to be the single driving force fueling these stock price declines -- and with good reason. With everything costing more, consumers are forced to cut back, resulting in difficult spending choices. With that as a backdrop, shoppers might be less willing to spend money on higher-priced meat substitutes offered by Beyond Meat, indulge in online gambling provided by DraftKings, or pony up for more expensive sustainable footwear courtesy of Allbirds.
That doesn't necessarily mean investors should abandon ship. Economic downturns are a normal part of the economic cycle and investors looking out years instead of months have time on their side.
Finally, each of these stocks is trading near their lowest valuations ever. DraftKings, Beyond Meat, and Allbirds stocks are currently selling for two times, two times, and one time forward sales, when a reasonable price-to-sales ratio is between one and two. So, all things being equal, the stocks are reasonably priced. For those looking beyond the current difficulties and three to five years into the future, the recent declines offer a compelling value proposition for those already sold on the investing theses.