What Happened?
A number of stocks fell in the afternoon session after the major indices fell further in the afternoon (Nasdaq -1.3%, S&P 500 - 1.4%) as Treasury yields rose, reflecting market anxiety over a draft federal budget that could worsen the already wide US fiscal deficit. A poor auction for 20-year U.S. Treasury bonds further raised concerns, as weak demand implies investors are becoming more cautious about holding long-dated U.S. debt.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates (yields), investors can apply higher valuations to their stocks; when yields rise, that math works in reverse.
Adding to the cautious mood were earnings results from retail giants Target and Lowe's, both of which reported weak earnings that missed expectations, pointing to a potential slowdown in consumer spending and further weighing on sentiment.
Lastly, some influential voices such as Jamie Dimon (JPMorgan) and Steve Cohen (Point72) made cautious comments about the market, which can sometimes become self-fulfilling prophecies as investors increase their cautiousness and skittishness.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Research Tools & Consumables company Danaher (NYSE: DHR) fell 5.2%. Is now the time to buy Danaher? Access our full analysis report here, it’s free.
- Genomics & Sequencing company Illumina (NASDAQ: ILMN) fell 5.4%. Is now the time to buy Illumina? Access our full analysis report here, it’s free.
- Satellite Telecommunication Services company Globalstar (NASDAQ: GSAT) fell 5.2%. Is now the time to buy Globalstar? Access our full analysis report here, it’s free.
- Professional Staffing & HR Solutions company Insperity (NYSE: NSP) fell 5.2%. Is now the time to buy Insperity? Access our full analysis report here, it’s free.
Zooming In On Illumina (ILMN)
Illumina’s shares are very volatile and have had 20 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 8.6% on the news that the company reported weak fourth-quarter 2024 results and provided full-year revenue guidance, which fell below Wall Street's expectations. The guidance did not account for the potential impact of the China Ministry of Commerce's decision to add the company to its 'unreliable entity list.'
On the other hand, Illumina exceeded analysts' organic revenue expectations this quarter, breaking its three-quarter streak of organic revenue declines. Its full-year EPS guidance also outperformed Wall Street's estimates.
Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. However, the weak guidance and lack of uncertainty on issues in China are likely to weigh heavily on the minds of investors.
Illumina is down 39.4% since the beginning of the year, and at $79.36 per share, it is trading 48.8% below its 52-week high of $155.15 from November 2024. Investors who bought $1,000 worth of Illumina’s shares 5 years ago would now be looking at an investment worth $227.12.
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