What Happened?
Shares of athletic apparel brand Nike (NYSE: NKE) fell 9.8% in the morning session after it reported mixed fourth quarter results which revealed shrinking profitability and a significant sales decline in China.
While the company surpassed revenue and earnings per share (EPS) expectations, investors focused on the underlying issues. Nike's operating margin contracted significantly to 8% from 11.2% in the same period last year, indicating rising costs relative to sales. Adding to the concerns, revenue in Greater China, a key growth market, dropped by a steep 17% year-on-year. Although North American sales grew by 9%, the weakness in China and the pressure on profitability overshadowed the headline beats, fueling investor concerns about the company's health.
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What Is The Market Telling Us
Nike’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock gained 4% on the news that the Federal Reserve cut interest rates by 25 basis points, signaling a potential boost for consumer spending.
This dovish action, combined with highly accommodating signals from Chair Jerome Powell and the Federal Open Market Committee (FOMC), sent the Dow Jones Industrial Average and S&P 500 surging. The market's bullish reaction was rooted in several key takeaways from the Fed's announcement. Most significantly, the central bank confirmed it would begin expanding its balance sheet by buying short-term bonds, a move that injects critical liquidity and lowers short-term Treasury yields.
Furthermore, the Fed signaled a shift in priority by removing language that described the labor market as "remaining low," suggesting it would be more focused on supporting economic growth. While the Fed's official forecast projected only one cut for the next year, traders immediately priced in the expectation of more aggressive easing, banking on at least two rate reductions. This widespread anticipation of sustained, low borrowing costs and the virtual certainty that rate hikes would be off the table boosted corporate valuations and created powerful momentum for the equity market rally.
Nike is down 19.6% since the beginning of the year, and at $59.25 per share, it is trading 27.5% below its 52-week high of $81.72 from February 2025. Investors who bought $1,000 worth of Nike’s shares 5 years ago would now be looking at an investment worth $411.39.
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