U.S equities opened down hard on Wednesday in response to an overnight Twitter feud between North Korea and President Donald Trump, who threatened the Democratic People’s Republic of Korea with “fire and fury” if they tried anything. The DPRK responded by threatening Guam with a pre-emptive nuclear strike. Adding to the pressure has been some disappointing earnings results.
Suddenly, for investors who were enjoying a “Goldilocks” scenario in the markets — with economic growth, monetary policy and inflation all just right to support the ongoing volatility crush — the prospect of a nuclear exchange is rattling sentiment. Coming after Tuesday’s modest decline, this sets the stage for the first two-day retreat since July and could violate uptrend support for the first time since June. But more than that, this sets the stage for possible violation of the post-election meltup.
It has been more than a year since the last significant market correction. Investor sentiment and positioning has since reached extremes. People just aren’t ready.
Here are five stocks at risk in a new draw down:
Stocks at Risk: Disney (DIS)
Walt Disney Co (NYSE:DIS) shares are down roughly 5% in mid-day trading on Wednesday, slicing below their 200-day moving average and the June/July support level. Buyers came in at the $100-a-share level after prices tested lows not seen since December.
All this came after the company reported weaker-than-expected earnings and announced that it was pulling its content off of Netflix, Inc. (NASDAQ:NFLX) in favor of a new arrangement with BAMTech, which it acquired for $1.6 billion and intends to use to launch an ESPN-branded video streaming service early next year. The House of Mouse intends to part ways with NFLX in 2019. Advertising revenue at ESPN dropped 8% in the third quarter on a decrease in impressions.
Stocks at Risk: Priceline (PCLN)
Priceline Group Inc (NASDAQ:PCLN) shares are down 8.3% — falling back below the $2,000-a-share level, ending a two-month trading range and returning to levels last seen in July after reporting solid results as forward guidance disappointed.
The company reported earnings of $15.14 per share, close to a dollar ahead of estimates, on an 18.3% rise in revenue. Management said it sees third-quarter earnings of between $32.40 and $34.10 per share vs. the $34.17 analysts were expecting.
Watch for a move to support near $1,800, which would be worth a decline of 5%. But that could ultimately prove a buying opportunity, as RBC Capital raised its price target to $2,050 on the strength of Priceline’s brands, its global footprint, and strong management execution.
Stocks at Risk: Netflix (NFLX)
NFLX shares are down 2.3% in mid-day trading, dropping out of a two-month trading range, on the news that DIS will be pulling content in 2019.
The company has been riding a tailwind following the reporting of solid earnings and impressive user growth. And there had been headlines crossing of a possible deal to expand into the Chinese market. Watch for a drop back to support near the early July lows, which would be worth a loss of around 15% from here.
The company will next report results on Oct. 16. Analysts are looking for earnings of 32 cents per share on revenues of $2.97 billion. When results were last reported on July 17, earnings of 15 cents per share missed estimates by a penny on a 32% jump in revenue.
Stocks at Risk: Starbucks (SBUX)
Starbucks Corporation (NASDAQ:SBUX) shares, which had jumped 20% from their March low into their June high, have fully reversed the rally and are threatening a break down below year-to-date support. This would set up a return to support near $52, which supports a trading range going all the way back to the summer of 2015.
The pullback has been catalyzed by some tepid forward guidance, realization that new strategic initiatives are needed from management and an analyst downgrade from BMO Capital Markets.
The company will next report results on Nov. 2 after the close. Analysts are looking for earnings of 55 cents per share on revenues of $5.8 billion. When the company last reported results on July 27, earnings met estimates by analysts, highlighted by a continuing trend of slowing same-store sales growth.
Stocks at Risk: National Oilwell Varco (NOV)
National-Oilwell Varco, Inc. (NYSE:NOV) shares are breaking down out of a four-month consolidation range and falling below support near $32 per share going back to last summer. Watch for a possible return all the way back to the early 2016 lows near $25, which would be worth an 18% decline from current levels. Shares were hit with a downgrade from SunTrust on Aug. 7. Cowen lowered their price target earlier in the month on ongoing uncertainty about the drilling rig systems business.
The company will next report results on Oct. 26 after the close. Analysts are looking for a loss of eight cents per share on revenues of $1.9 billion. When the company last reported on July 27, a loss of 14 cents per share was in line with estimates, on a 2% jump in revenues.