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Chart Advisor: Pullback Paused

Investopedia

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Wednesday, 22nd September, 2021

1/ Indexes rising again

2/ Profit taking for Adobe 

3/ FedEx earnings miss  

4/ The bottom line

1/ Indexes Rising Again

Markets staved off the September pullback, rallying after the Federal Reserve kept benchmark interest rates anchored near zero. As investors digested the latest statements from the Fed, State Street’s S&P 500 ETF (SPY), State Street’s Dow Jones Industrial Average ETF (DIA), and Invesco’s Nasdaq 100 ETF (QQQ) rose nearly 1%, with iShare’s Russell 2000 ETF (IWM) gaining nearly 2%.  

Officials did indicate that they expect to begin reducing monthly asset purchases soon, however, they did not give a concrete timeline as to when. The Federal Open Market Committee (FOMC) also significantly cut its economic outlook for this year, citing hiring difficulties and supply chain bottlenecks as factors that are putting a damper on the planned continued economic recovery. 

Despite indexes gaining back a bit ground they’d recently given up, the Cboe Volatility Index (VIX) remained elevated compared to relatively normal levels. Also known as the “fear index”, an elevated VIX could express that while markets paused the pullback today, investors may be uncertain of market strength going forward.  

2/ Profit Taking for Adobe 

Investors booked profits in Adobe (ADBE), sending the stock price lower after the company reported that it had beat analysts’ forecasts for both revenue and earnings per share (EPS). ADBE reported $3.11 in EPS and $3.94 billion in revenue, exceeding expectations of $3.02 in EPS and revenues of $3.9 billion. Despite guiding higher for the current quarter and receiving a price target upgrade from Wells Fargo, the share price fell 3%. ADBE has had a relatively strong year, as, even including today’s drop, the stock has risen 29% year-to-date. 

The market’s reaction to ADBE’s earnings places it nearly directly in line with the iShares Expanded Tech-Software Sector ETF (IGV), as seen on the chart below. ADBE has been outperforming IGV, with the software ETF up 19% year-to-date. As one of the ETF’s largest holdings, a continued slide from ADBE could hamper IGV’s performance.  

3/ FedEx Earnings Miss  

The share price of FedEx (FDX) has fallen to an extreme range after the company missed EPS expectations by 11% in its fiscal first-quarter earnings results. FDX reported $4.37 EPS to go along with $22 billion in revenue; analysts had expected $4.92 in EPS and 21.89 billion in revenue. The delivery giant blamed cost inflation for the lower-than-expected profit, while also guiding lower for the current quarter. As a result, FDX stock fell more than 8%, its largest single-day drop in 18 months. 

FDX has been on a relative downtrend of late, closing below its 20-day moving average since July. The company has lagged its sector, as the iShares US Transportation ETF (IYT) has gained 13% year-to-date, while FDX has fallen 9% in the same span. It could continue to be tough sledding ahead for FDX, as the company received several downgrades from analysts following the lackluster earnings report.  

4/ The Bottom Line 

Indexes rose only slightly today, but with an elevated VIX the trend may not continue. Despite positive earnings, Adobe shares sold off along with selling of FedEx after their earnings miss.  

Originally posted on 22nd September, 2021

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