Markets Fall Again as 2 Key Stocks Show Fear of What's Ahead

The Motley Fool
The Motley Fool
  • Markets fell sharply on Tuesday at midday.
  • Shares of Salesforce and Zscaler were especially weak ahead of earnings later today.
  • What the two companies report could be instrumental in pointing the way forward for the market as a whole.

After a day of calm, stock markets moved sharply lower again on Tuesday, showing nervousness about the potential impact of the new omicron COVID-19 variant. Even with the uncertainty of the ongoing pandemic, Federal Reserve Chair Jerome Powell indicated that a more rapid removal of accommodative monetary policy might be warranted to fight inflation. As of just after noon ET, the Dow Jones Industrial Average (DJINDICES:^DJI) was down 669 points to 34,467. The S&P 500 (SNPINDEX:^GSPC) fell 89 points to 4,566, while the Nasdaq Composite (NASDAQINDEX:^IXIC) dropped 331 points to 15,454.

High-growth tech stocks have been among those getting the greatest amount of attention from nervous investors lately. Given the potential impact of rising interest rates on their valuations, it's been more important than ever for these companies to deliver the results that investors want to see. Later today, (NYSE:CRM) and Zscaler (NASDAQ:ZS) will deliver their latest readings on their financial success, and based on how the stocks are faring during the regular trading session, shareholders don't seem to be very confident about what the two will say about the future.
Image source: Getty Images.

Salesforce slides

Salesforce shares fell 3.5% at midday on Tuesday, making the customer relationship management software specialist's stock the worst performer in the Dow. The company has performed well throughout most of 2021, but a pullback over the past couple of weeks has signaled at least some loss of confidence about just how far it can climb.

Investors are expecting mixed results from Salesforce in its report later today. On one hand, they're looking for renewed sales growth, with revenue projected to climb roughly 25% to about $6.8 billion. On the other hand, the company's bottom line could pull back, with expectations for just $0.92 per share compared to adjusted earnings of $1.74 per share in the year-ago period.

Salesforce hasn't held back in its efforts to take advantage of the digital transformation that's happening across the global economy. The resulting expansion in its addressable market has Salesforce accelerating its own plans to capture as much market share as possible, with healthy margins and positive cash flow helping to drive further investment.

Yet if business activity decreases again due to a worsening of the pandemic or other macroeconomic factors, it could have a negative impact on Salesforce's efforts. That appears to be driving the continued pullback on Tuesday.

Scaling up at Zscaler

Elsewhere, Zscaler shares were down almost 3%. Like Salesforce, its stock hasn't pulled back that far from all-time highs set earlier this month, but investors are still apparently concerned about how the latest news could show up in earnings results.

Sales at Zscaler will almost certainly continue to move higher. Projections among those following the cybersecurity provider expect revenue to top $208 million, which would represent about a 46% rise from year-ago levels. However, adjusted earnings of $0.12 per share would be down about 14% year over year from the $0.14 per share Zscaler produced in the first quarter of fiscal 2021 a year ago.

However, software-as-a-service companies have been particularly sensitive to earnings misses. It's taken ideal results to satisfy shareholders, and anything short of perfection has often led to punishing declines for the stocks involved.

In just a few hours, investors will find out whether their worries about Zscaler and have been correct. In the meantime, though, keeping the right perspective and focusing on long-term prospects of the stocks you own will help you make smarter decisions than if you simply react to the turbulence of market movements.

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