ServiceNow (NYSE:NOW) stock has sunk more than 12% today after CEO Bill McDermott gave an interview in which he warned about a gloomy macroeconomic environment moving forward.
Now, most investors are aware of the macro headwinds facing this market. We have inflation not seen in four decades. The Federal Reserve is on overdrive ramping up interest rates. Accordingly, U.S. dollar strength could hurt companies with overseas sales. Geopolitical concerns are higher than they have been in a generation, with the Russian invasion of Ukraine. And renewed Chinese Covid-19 restrictions are hampering global supply chains further.
In short, there’s not much to like about this market.
However, it seems that McDermott’s warnings of how these headwinds could impact the company have startled investors. While investors know these risks exist, how they pertain to specific companies like ServiceNow are noteworthy. Let’s dive into why investors are in selling mode today.
NOW Stock Drops on Gloomy CEO Comments
Out of all the factors mentioned, it appears ServiceNow’s CEO is most concerned with the strong U.S. dollar. While demand appears to remain robust for IT spending, if those sales are originated in foreign currency, it means less U.S. dollars for the company. This is the case with many multinational tech companies.
Indeed, the strong U.S. dollar is a headwind which is starting to get more attention right now. The dollar’s strength has been on display, with recent reports that the USD and euro have now reached parity. Such a move hasn’t happened in two decades, and indicates the flight to safety global markets are seeing.
For U.S. importers and consumers of imported goods, this can be a good thing. However, those selling their services to a global clientele may experience weakness. Right now, investors appear to be calculating what the dollar impact could be for this upcoming quarter (or quarters, should this continue).
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
