What Happened?
Shares of athletic apparel brand Nike (NYSE:NKE) jumped 6.9% in the afternoon session after the major indices popped (Nasdaq +3.4%, S&P 500 +2.5%) in response to the positive outcome of U.S.-China trade negotiations, as both sides agreed to pause some tariffs for 90 days, signaling a potential turning point in ongoing tensions. This rollback cuts U.S. tariffs on Chinese goods to 30% and Chinese tariffs on U.S. imports to 10%, giving companies breathing room to reset inventories and supply chains.
However, President Trump clarified that tariffs could go "substantially higher" if a full deal with China wasn't reached during the 90-day pause, but not all the way back to the previous levels.
Still, the agreement has cooled fears of a prolonged trade war, helping stabilize expectations for global growth and trade flows and fueling renewed optimism.
The optimism appeared concentrated in key trade-sensitive sectors, particularly technology, retail, and industrials, as lower tariffs reduce cost pressures and restore cross-border demand.
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What The Market Is Telling Us
Nike’s shares are somewhat volatile and have had 10 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 11 months ago when the stock dropped 19.6% on the news that the company reported weak second-quarter 2024 results. Unfortunately, its constant currency revenue missed. The company recorded weaknesses in its Lifestyle brand, especially in the Digital channel. Notably, digital channel sales declined 10% due to softer traffic, higher promotions, and lower sales of certain classic footwear franchises.
Management cited these issues, in addition to macro headwinds (especially in China) and unfavorable FX, as the reasons for revising FY'25 guidance. Nike expected fiscal 2025 sales to be down mid-single digits. Sales in the first half (1H'25) were expected to be down high single digits (vs. previous guidance for low single digits decline). Precisely, revenue was expected to be down 10% in Q1'25, given most of the challenges called out during the earnings call. Overall, this was a bad quarter for Nike.
Nike is down 15% since the beginning of the year, and at $62.66 per share, it is trading 35.5% below its 52-week high of $97.18 from June 2024. Investors who bought $1,000 worth of Nike’s shares 5 years ago would now be looking at an investment worth $709.66.
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