Investors have had to deal with extreme bearishness on Wall Street recently. The S&P 500 hit its lowest level of the year on Monday, as fears about the impact of rising interest rates on bond and currency markets added to uncertainty about a potential global economic recession. Yet on Tuesday morning, stocks rebounded sharply, responding favorably to the idea that there's only so far that central bankers worldwide will go before looking to clamp down on volatility in the U.S. dollar and foreign currencies.
The best sign that stock investors get about whether a recession is coming is when the companies that serve businesses and consumers say how they're doing. This week, the most important news will come from Nike (NKE -1.26%) on the consumer side and Micron Technology (MU -4.61%) on the enterprise side. Both companies report their latest financial results on Thursday, and both have seen immense growth in the recent past but are dealing with potential clouds on the horizon.
Can Nike just do it?
Nike shares have taken a beating so far in 2022, falling more than 40% from where they started the year. The athletic footwear pioneer has had to deal with slowing growth after having massive success in its previous fiscal year.
Nike's results over the past two fiscal years show just how different an environment the company seems to face now. In the 2021 fiscal year ending May 31, revenue soared 19%, led by a 32% rise in Nike Direct sales. Even with the store closures that the COVID-19 pandemic forced on the company, comparable store sales climbed 4% year over year, and big gains in gross margin and a reduction in administrative expenses helped earnings more than double from the previous year's results.
Yet in fiscal 2022, the picture was a lot different. Revenue picked up just 5% on the year, with declines in wholesale revenue offsetting double-digit gains in Nike Direct sales. Despite further rises in gross margin, administrative expenses were sharply higher, and earnings were only able to post a 5% year-over-year gain.
Investors currently expect fiscal 2023 to be even more difficult, projecting falling earnings and further weakness in sales growth. Yet if the athletic retail giant can prove those forecasts wrong, then Nike stock could play a key role in helping the market sustain a rally.
Micron wants to keep chipping away
Micron Technology has seen its stock lose even more ground, falling by roughly half since 2022 began. The chipmaker has benefited from strong industry conditions, but investors fear the good times could be about to end and are anticipating poorer performance ahead from Micron.
Micron's fiscal third-quarter results for the period ending June 2 showed continued strong growth for the chipmaker. Revenue climbed 16% year over year to hit new record levels, with a massive 4.5 percentage point gain in gross margin to 47.4%. Adjusted earnings of $2.59 per share were up 38% from the same period the previous year.
Yet CEO Sanjay Mehrotra warned that Micron had seen a significant reduction in near-term demand, pointing to weakness in the PC and smartphone consumer markets as the immediate cause. Inflationary pressures, poor levels of consumer spending in China, and impacts from the war in Ukraine have all contributed to Micron seeing its customers pull back. Even with cloud computing, networking, and other industrial markets like automotive seeing continued strength, Micron cut its calendar 2022 demand growth estimates and said it would take typical steps to cut supply growth as it anticipates the inevitable downward cycle in the semiconductor space.
Micron stock is already priced in anticipation of seeing declines in earnings in the future. If Micron can succeed in even slowing the descent of its net income, though, it could be enough to help investors regain confidence and start bidding shares higher again.
