By Thomas Heath

The Washington Post

Nike drops as North American sales rebound misses estimates

This might sound familiar to Nike investors.

The world’s largest sportswear company delivered strong third-quarter earnings Thursday, but missed on one important metric: North American sales. The home market dogged Nike for much of 2017 and early 2018, and the latest sales miss sent the shares down as much as 4.3 percent Friday in New York. That’s the stock’s largest drop since Christmas Eve.

Third-quarter sales in Nike’s home market, by far its biggest, totaled $3.81 billion in the period ended Feb. 28, short of the $3.85 billion average of estimates. Nike outpaced expectations in each of its other regions — Europe, Middle East and Africa, greater China, as well as Asia Pacific and Latin America.

This is old terrain for Nike investors — albeit on a less-frightening scale. The Beaverton-based company suffered three straight quarters of lower North American sales in 2017 and 2018, with rival Adidas gaining ground. That narrative reversed in recent months, with Nike recovering in North America and posting significant growth in Adidas’ home region. And the company still managed to scratch out a 7 percent sales gain at home.

Last year, Nike said its domestic slump stemmed mostly from struggles at its U.S. retail partners, which were closing stores amid a slow period for the entire industry. That’s a harder argument to make right now, a period of growing momentum for both apparel and shoe sellers.

Other metrics turned out more favorably for Nike.

The company is expected to be the biggest beneficiary among competitors as the NCAA “March Madness” basketball tournament gets underway, analyst Chen Grazutis said Thursday, before the results were published.

For the current fourth quarter, Nike projects low single-digit percentage growth in sales, citing currency fluctuations. That would put revenue below the $10.4 billion average of analysts’ estimates.

— Bloomberg

Markets plunged Friday when a closely watched economic measure warned that sluggish global growth could tip the United States toward recession.

All three major indexes saw a steep decline on worries that a recession may finally be on the horizon after a 10-year bull market and economic expansion.

The Dow Jones Industrial Average dropped 460 points, about 1.8 percent, when the 10-year Treasury yield fell below the 3-year yield. The so-called “inverted yield curve” is a historic precursor of a recession.

Stocks posted their worst day since Jan. 3.

“It is freaking the stock market because an inverted yield curve has a history of predicting recessions,” said Ed Yardeni of Yardeni Research. “However, it is just one of the 10 components of the Index of Leading Economic Indicators, which remains on an uptrend.”

The Standard & Poor’s 500-stock index shed 1.9 percent. The Nasdaq composite fell 2.5 percent, its first drop in six sessions.

Dragging the Dow were Nike, DowDuPont and Caterpillar. Dow utilities showed strength as investors flocked to safety.

Financial services, energy and industrials were the hardest-hit sectors in the S&P 500.

The yield on the 10-year Treasury is closely watched in the financial world because many view it as a window on where the economy is headed: up, down or sideways. Yields work inversely to a bond’s price.

When the 10-year yield is lower than the 3-year yield, it tends to signal that people are locking up money longer term because they fear a slowdown in business profits and its accompanying decline in stock prices.

But not all yield-curve inversions signal a recession is in the offing.

The Federal Reserve sensed a slowdown in the last few months, putting interest rates on hold until the U.S. economy adjusts to a more-rapidly decelerating global economy.

“The yield curve inversion, coming quickly after a dramatic ‘about face’ for the Fed, is undermining investor confidence,” said Kristina Hooper, global strategist at Invesco. “At the end of the day, we have to remember that an inverted yield curve doesn’t cause a recession, it’s just a good indicator that one is coming. Investors should not be panicking.”

The American economy is still remarkably healthy. U.S. stock indexes are near all-time highs; unemployment is near a record low; real wages are increasing; interest rates are fueling the economy with cheap money, and oil is inexpensive.

But weak manufacturing data out of Germany on Friday showed a third consecutive month of dwindling activity, feeding into investor fears of a worldwide recession. Germany has been the eurozone’s growth engine.

“This morning we got new statistics on a slowing economy, from both U.S. and German, adding to the market concern,” said Howard Silverblatt of S&P Dow Jones indices.

The financial services sector was down 2.6 percent Friday — pulling it down 4.7 percent on the week — following dovish comments from Federal Reserve Chairman Jerome H. Powell on Wednesday.

“Banks have a harder time making money in a low-interest rate environment, so they are getting hit the worst,” Silverblatt said. “They have fixed costs, and without higher interest rates, they have difficulty covering those costs.”