Key Highlights

● S&P Global Ratings cut Nike's issuer Credit rating to A from A+ with a negative outlook.

● The agency said "wholesalers are sitting on excess inventory," a warning sign for sales recovery.

● Nike is also leaving the S&P 100 after 18 years as one of America's largest companies.

S&P Global Ratings put Nike's turnaround under fresh scrutiny on Monday, Oct. 5, cutting its credit rating and warning about China and wholesale inventory, and the shares fell on the Dow.

The warning that caught attention

Nike (NYSE:NKE) was one of the most talked-about stocks on the Dow Jones Industrial Average on Monday after S&P Global Ratings cut its issuer credit rating to A from A+ with a negative outlook. The stock closed lower.

The line that grabbed attention came from S&P's assessment of Nike's sales channels. The agency said "wholesalers are sitting on excess inventory."

That matters because stores that are already holding too much stock tend to order less, which can slow a brand's sales recovery even if shoppers still like the product.

China at the center

S&P said Nike's recovery in China, along with its Sportswear and Jordan lines, is slower than expected. Those lines account for the majority of Nike's revenue.

The agency expects China Revenue to fall sharply in fiscal 2027 and total revenue to decline that year as well. It sees Leverage rising to 1.0 times and then to 1.4 times in fiscal 2028, and projects about $1.2 billion of annual cash burn after dividends, along with about $1 billion in further restructuring charges.

A negative outlook means S&P sees some chance of a further cut, though an A rating is still solidly Investment grade.

The downgrade arrived alongside another sign of how far Nike's stock has drifted. The company is leaving the S&P 100 after 18 years, a group made up of the largest US companies.

The consumer backdrop

Nike's trouble came as consumer stocks broadly struggled. Restaurant names were weak, with Chipotle (NYSE:CMG) sliding and McDonald's (NYSE:MCD) touching a 52-week low before bouncing. Consumer discretionary stocks were trying to avoid a ninth straight weekly decline.

Higher borrowing costs remain a headwind for shoppers. The 10-year Treasury Yield rose to its highest level since 2002, while the ISM services prices-paid index hit 74.0, the highest since July 2022. Friday's jobs report showed payrolls rising by just 29,000, which cut bets on an October Fed hike.

Tech carried the indexes

The wider market was upbeat thanks to technology. The Nasdaq Composite jumped 286.45 points to a record 27,477.31, and the S&P 500 added 51.23 points to 7,773.95, just shy of its summer record. The Dow rose just 90.94 points to 51,267.90, held back by health care and consumer names including Nike.

Oil also eased, with Brent settling at $100.32 a barrel, even as the Strait of Hormuz remained effectively closed.

Nike is one of the 30 stocks in the Dow Jones Industrial Average, so its slide helped hold back the Blue-Chip index on a day when Visa (NYSE:V) led the gainers and health care names dragged.

What to watch

The next major update on Nike's China business, wholesale inventory and Cash Flow will come with the company's next quarterly report. Investors will also be watching for any further comment from rating agencies.

On the macro front, minutes from the Fed's September meeting are due Wednesday, Oct. 7 at 2 p.m. ET, and the Fed meets again Oct. 27 to 28. PepsiCo on Thursday and Delta Air Lines on Friday will offer fresh reads on consumer demand.