US stocks end lower after FedEx warns of global recession

US stocks fell on Friday after FedEx gave investors a strong announcement about its outlook for the global economy.

The Dow Jones closed down 140 points, or 0.5%. The S&P 500 is down 0.7% and the Nasdaq Composite is down 0.9%.

All three major indices recorded their fourth losing week of the last five. The Dow is down 4.1% for the week, and the S&P 500 and Nasdaq are down 5% and 5.5%, respectively.

FedEx shares tumbled nearly 22% after the company released its guidance for the remainder of the year on Thursday and warned that a slowing economy will see it fall $500 million below its revenue target.

The weakening global economy, particularly in Asia and Europe, has hurt FedEx’s express delivery business. The company said demand for orders weakened considerably in the final weeks of the quarter.

During a Thursday interview with CNBC, FedEx CEO Raj Subramaniam was asked if he believes the slowdown in his business is a sign of the onset of a global recession.

“I think so,” he replied. “These numbers, they don’t bode very well.”

This marks FedEx’s worst one-day drop in history — surpassing the 16% drop on the day of the 1987 stock market crash. The Dow Transportation Index also dropped more than 5% in Friday’s trading and competitor FedEx, UPS also dropped about 5%.

Transport stocks are considered an important indicator for the market in general, and FedEx in particular is seen as a market indicator. The announcement could contribute to broader declines in a market that is already heading for a big week of losses.

Still, some analysts think Amazon may be responsible for FedEx’s headache. “Amazon [recentemente] released free shipping software for sellers and discounted shipping rates,” JPMorgan’s Jack Atherton wrote in a customer note.

“Amazon has built up cash in its logistical capacity in recent years to the point where it has excess capacity for its own needs and is hungry for more share which is being directed through FBA (Fulfillment By Amazon) and could be weighing on FedEx. ” Amazon shares fell more than 2% on Friday.

Either way, the third quarter reporting season kicks off next month and the FedEx warning adds to analysts’ sour outlook on earnings expectations.

Third-quarter earnings per share estimates are down more than 5.5% since late June, according to FactSet data. That’s the biggest drop for a quarter since the second quarter of 2020 (when Covid-19 put the United States into recession).

The FedEx announcement also comes as investors worry about a weakening economic outlook as the Federal Reserve aggressively raises interest rates to rein in inflation.

The preliminary September reading of the University of Michigan’s consumer confidence index added to investor woes on Friday, reaching 59.5, its highest level since April but below economists’ estimates.

The September survey showed that respondents do not expect high prices to go away anytime soon, consumers said they expect inflation to hit 4.6% in the next 12 months and 2.8% in the next five years.

This is bad news for investors, as expectations can be a self-fulfilling prophecy: if consumers anticipate prices will remain high, they are likely to spend more and demand higher wages, while companies may raise prices to accommodate demand and prices. higher wages. If expectations are lower, they may rein in spending and ask for smaller pay increases.

Friday’s consumer sentiment report is the last big economic data before the Federal Reserve meets next week to discuss monetary policy and determine whether to raise rates once again in its battle to tame inflation.

Still, most of this week’s market loss came on Tuesday, after a key inflation reading, the August consumer price index report, came to fruition. The Dow lost 1,200 points on the news – it’s the worst decline since June 2020.