Today in the Market (2/24/2023)

Good Evening! The U.S. stock market fell on Friday as the Federal Reserve’s most closely monitored inflation indicator came in higher than anticipated, indicating that pricing pressures would persist until 2023.

The S&P 500 decreased by 1.05%, while the Dow Jones fell by 1.02%. The Nasdaq Composite dropped 1.69%. Since December, Friday was the worst week for the S&P 500 and Nasdaq.

WORK NEEDS TO BE DONE

Block, Inc. (SQ), a payments business, released fourth-quarter results that exceeded Wall Street’s forecasts on the top line but fell short of profitability. Despite a weakening economy, consumer spending remained strong for the company. Here are the numbers! 

  • Revenue: $4.65 Billion vs. $4.57 Billion Expected
  • Earnings Per Share: $0.22 vs. $0.28 Expected

What else is changing? In the future, Block’s management will place a greater emphasis on the statistic of adjusted operating income, which includes stock-based compensation. The management’s objective for each of its business sectors is based on the Rule of 40. The growth rate plus the adjusted operating margin must equal at least 40, which in turn is an excellent measure for producing shareholder value.

However, there is work to be done. Block fell well short of its Rule of 40 targets in 2022, reaching 23 without its Afterpay acquisition. On top of that, investors should view its aspirations with some skepticism. Thus, the market is encouraged by the freshly specified emphasis. And balancing growth and earnings would benefit shareholders in the long run.

A NEW TREND?

Layoff was a big trend in 2022, but here maybe a new trend forming… In order to enhance the soundness of their balance sheets, firms are cutting dividend payments to shareholders in response to falling profits and hefty debt burdens. So, what companies have already started?

  • Intel Inc., the world’s biggest manufacturer of computer chips, cut its dividend payout this week to its lowest level in 16 years in an attempt to save cash and aid in its financial turnaround.
  • Hanesbrands Inc., a century-old textile manufacturer, discontinued the quarterly dividend last month as it had been paying for over a decade.
  • VF Corporation, which owns Vans, The North Face, and other brands, has reduced its dividend in recent weeks as part of its efforts to lower its debt load.

This may continue… As a response to sluggish results and the ensuing increase in debt, further firms may follow suit. Also, with the Federal Reserve’s new rate structure, executives have been compelled to carefully manage both expenses and debt in order to maintain a positive cash flow.

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