Stocks fell sharply today. After opening to solid gains, selling gained momentum throughout the trading session and indexes ended near their lows of the day. By the closing bell, the Dow Jones Industrial Average (^DJI 0.56%) had shed 365 points, or 2.3%, and the S&P 500 (^GSPC -0.88%) lost 48 points, or 2.5%.
The Dow and S&P 500 are each down 7% since the beginning of 2016.
As for individual stocks, Chipotle (CMG -1.34%) logged a solid gain as the burrito chain's management gave investors fresh information on its operating outlook. On the other hand, Netflix (NFLX -9.09%) fell sharply on fears that the streaming video giant might not live up to high expectations around its fourth-quarter earnings release due out next week.
Chipotle's path to recovery
Chipotle's 5% gain made it the best-performing stock on the S&P 500 today. Despite the gain, shares are still down by 25% in the last month, thanks to food safety concerns that have knocked the restaurant chain off of its decade-long growth streak.
Image source: Chipotle.
Chipotle executives presented at an investor conference this morning, where they provided their latest thoughts on the E. coli bacteria outbreak that has now spawned a criminal investigation. Despite the negative publicity, the company believes that dramatic improvements to its food handling processes will help it eventually win back customers' loyalty and return to its industry-thumping profit margins. But the recovery will take time. Earnings will be "messy" this year, Chief Financial Officer Jack Hartung said, on the way to higher growth and profits in 2017 .
The stock is 42% below the all-time high it touched three months ago, and investors with a strong stomach for volatility might consider that a tempting discount. Chipotle's management, for one, seems confident that this incident won't change the chain's long-term growth trajectory. They haven't scaled back the pace of new store openings and in fact have sharply increased stock buyback spending lately: Chipotle spent $211 million last month on its stock even as comparable-store sales growth cratered to -30 %.
Netflix's global growth
Netflix was among the market's worst performers today, falling by 9%. The streaming video giant was hit with a stock downgrade this morning when ITG Research said its data suggests that Netflix may have only added 1.1 million subscribers in the U.S. last quarter, below management's target of 1.3 million new domestic members .
Image source: Netflix.
If true, that result would represent a major slowdown from the prior year's 1.9 million subscriber increase. While Netflix's main strategic focus is currently on international expansion, it's important that membership growth in the U.S. continue at a steady pace so that it can generate sufficient profits to fund the ramp up into profitability in those other markets.
Still, on a global basis, Netflix is likely to have posted accelerating growth last quarter. CEO Reed Hastings issued guidance in October that called for 5.2 million new members, compared to 4.3 million additions in the prior year period. Given that the company reached its global availability goal last week – as opposed to late 2016, investors will be listening for updates on how the new market position will impact profits going forward.
Netflix is scheduled to post its fourth-quarter earnings results on Tuesday, Jan. 19. If you recall, it was the same quarterly report a year ago that started the streamer's incredible march toward becoming one of 2015's best-performing stocks. In the last year, Netflix has transitioned into a global TV network with a world-class portfolio of exclusive content. We'll find out next week what Hastings believes 2016 will bring for the business.
