US stocks fell on Friday after FedEx served investors a blunt pre-earnings announcement on the state of the global economy.
The Dow closed down 140 points, or 0.5%, lower. The S&P 500 fell 0.7% and the Nasdaq Composite 0.9%.
The three main indices recorded their fourth losing week in the last five. The Dow Jones fell 4.1% for the week, and the S&P 500 and Nasdaq fell 5% and 5.5%, respectively.
Shares of FedEx (FDX) fell nearly 22% after the company withdrew its full-year forecast on Thursday evening and warned that a slowing economy would send it down $500 million from to their revenue goal. A weaker global economy, particularly in Asia and Europe, hurt FedEx’s (FDX) (FDX) express delivery business. The company said demand for packages weakened significantly in the final weeks of the quarter.
During a Thursday interview on CNBC, FedEx CEO Raj Subramaniam was asked if he thought the slowdown in business was a sign of the start of a global recession.
“I think so,” he replied. “These numbers, they don’t bode well.”
It was the worst one-day drop in FedEx history – surpassing the 16% drop on the day of the 1987 stock market crash. The Dow Transportation index also fell more than 5% on Friday and the competitor of FedEx, UPS (UPS), also fell about 5%.
Transportation stocks are considered a leading indicator for the market as a whole, and FedEx in particular is considered a market indicator. The announcement could contribute to broader declines in a market that is already heading for a big losing week.
Still, some analysts think Amazon (AMZN) could be to blame for FedEx’s headache. “Amazon (AMZN) [recently] launched free shipping software for sellers and reduced shipping rates,” JPMorgan’s Jack Atherton wrote in a client note.
“Amazon has poured money into its logistics capacity over the past few years to the point that it has excess capacity for its own needs and is hungry for more shares that are targeted via FBA (Fulfillment By Amazon ) and could weigh on FedEx.”
Amazon stock fell more than 2% on Friday.
Either way, third-quarter reporting season begins next month and FedEx’s warning adds to analysts’ sour outlook on earnings forecasts.
Estimates for third-quarter earnings per share have fallen more than 5.5% since late June, according to FactSet data. It’s the biggest one-quarter drop since the second quarter of 2020 (when Covid-19 sent the US into recession).
FedEx’s announcement also comes as investors worry about a weakening economic outlook as the Federal Reserve aggressively raises interest rates to tame inflation.
Adding to investors’ woes on Friday was September’s preliminary reading of the University of Michigan consumer sentiment index, which came in at 59.5, its highest level since April but below economists’ estimates. The September survey showed respondents don’t expect high prices to disappear anytime soon, consumers said they expect inflation to hit 4.6% over the next 12 next few months and 2.8% over the next five years.
This is bad news for investors, as expectations may be a self-fulfilling prophecy: if consumers expect prices to remain high, they are likely to spend more and demand higher wages, while companies may raise prices. to meet higher demand and wages. If expectations are lower, they could rein in spending and demand lower wage increases.
Friday’s consumer sentiment report is the last major economic data before the Federal Reserve meets next week to discuss monetary policy and whether it will hike rates again in its battle to tame inflation.
Still, the bulk of this week’s market loss came on Tuesday after a key inflation reading, the August Consumer Price Index report, came in strong. The Dow Jones lost 1,200 points on the news – the worst drop since June 2020.
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