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Service Today (NYSE:NOW) the stock sank more than 12% today after CEO Bill McDermott gave interview where he warns about a dark macroeconomic environment going forward.
Today, most investors are aware of the macro headwinds facing this market. We have inflation that has not been seen in four decades. The Federal Reserve is in too much of a hurry to raise interest rates. Accordingly, the strength of the US dollar could hurt companies with overseas sales. Geopolitical concerns have been higher than a generation, with Russia’s invasion of Ukraine. And renewed restrictions on Chinese Covid-19 are increasingly hampering global supply chains.
In other words, there is not much to like in this market.
However, it seems McDermott’s warnings of how these headwinds could affect the company have surprised investors. While investors know these risks exist, it’s remarkable how they relate to specific companies like ServiceNow. Let’s examine why investors are in selling mode today.
NOW Stock Drops on Gloomy CEO Comments
Of all the factors mentioned, it appears that the CEO of ServiceNow is more concerned with the strong US dollar. While demand for IT spending seems to remain stable, if sales come in foreign currency, it means fewer US dollars for the company. This is the case with many multinational tech companies.
In fact, the strong US dollar is a headwind that is starting to get more attention right now. The strength of the dollar has been shown, with recent reports that the USD and euro have now reached parity. Such a step has not happened in two decades, and indicates a flight towards safety seen by global markets.
For US importers and buyers of imported products, this can be a good thing. However, those who sell their services to a global clientele may experience vulnerability. Right now, investors appear to be calculating what the impact of the dollar might be for the upcoming quarter (or quarters, if it continues).
At the date of publication, Chris MacDonald does not (whether directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the authors, subject to the InvestorPlace.com Publishing Guidelines.