Stocks tumble after FedEx warns of global recession

The Dow Jones Industrial Average fell 354 points, or 1.2%, on Friday afternoon. The S&P 500 fell 1.5% and the Nasdaq 1.8%.

FedEx shares fell more than 22% after the company withdrew its full-year guidance on Thursday night and warned that a slowing economy will cause it to fall $500 million short of its revenue target. . The weakening of the global economy, particularly in Asia and Europe, has affected FedEx (fdx) (FDX) express delivery business. The company said package demand weakened considerably in the closing weeks of the quarter.

During an interview Thursday on CNBC, FedEx CEO Raj Subramaniam was asked if he thinks the slowdown in his business is a sign of the start of a global recession.

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

If FedEx shares close near the 22% drop, it will be the worst one-day drop in stock history, surpassing the 16% drop on the day of the 1987 stock market crash. The Transportation Index The Dow also fell nearly 6% in afternoon trading and FedEx competitor, UPS (UPS)down 5%.

Transportation stocks are considered a leading indicator for the market in general, and FedEx, in particular, is considered a market benchmark. The announcement could contribute to broader declines in a market already headed for a big losing week.

Still, some analysts think Amazon could be responsible for FedEx’s headache. “Amazon (AMZN) [recently] launched free shipping software for sellers and discounted shipping rates,” JPMorgan’s Jack Atherton wrote in a client note.

“Amazon has racked up money in its logistics capacity in recent years, to the point where it has excess capacity for its own needs and is hungry for more share, which is directed through FBA (Fulfillment By Amazon) and could be weighing on FedEx.”

Amazon shares fell nearly 3% on Friday afternoon.

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

Third-quarter earnings-per-share estimates have fallen more than 5.5% since the end of June, according to data from FactSet. That is the biggest drop in a quarter since the second quarter of 2020 (when covid-19 sent the United States into recession).

FedEx’s announcement also comes as investors worry about a weakening economic outlook as the Federal Reserve aggressively raises interest rates to control inflation.

All three major indices are now on track for their fourth losing week in the last five.

The preliminary reading for September of the University of Michigan consumer confidence index added to investors’ woes on Friday, coming in at 59.5, its highest level since April, but below economists’ estimates. The September survey showed respondents do not expect high prices to go away anytime soon, with consumers saying they expect inflation to hit 4.6% over the next 12 months and 2.8% over the next five years.

That’s bad news for investors, as expectations may be a self-fulfilling prophecy: If consumers expect prices to stay high, they’re likely to spend more and demand higher wages, while businesses may raise prices to accommodate a higher demand and wages. If expectations are lower, they might rein in spending and ask for smaller pay raises.

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

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

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