Shares tumble after FedEx warns of a worldwide recession

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

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

FedEx shares fell nearly 22% after the company withdrew its full-year guidance late Thursday and warned that a slowing economy will cause it to fall $500 million short of its revenue target. The weakening global economy has hurt Asia and Europe in particular FedEx (FDX) (FDX) in the express delivery business. The company said demand for packages weakened significantly in the final weeks of the quarter.

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

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

This is FedEx’s worst one-day drop in history — more than the 16 percent plunge on the day of the 1987 stock market crash. The Dow Transportation Index also fell more than 5 percent in Friday trading and competitor FedEx, UPS (UPS)also fell by about 5%.

Transportation stocks are seen as a leading indicator for the market as a whole, and FedEx in particular is seen as a market leader. The announcement could contribute to broader declines in a market already heading for a big losing week.

Still, some analysts believe Amazon could be to blame for FedEx’s headache. “Amazon (AMZN) [recently] introduced free shipping software for sellers and discounted shipping costs,” JPMorgan’s Jack Atherton wrote in a note to customers.

“Amazon has poured money into its logistics capabilities over the last few years to the point where it has excess capacity for its own needs and is hungry for more share that could be targeted by FBA (Fulfillment By Amazon) and weigh on FedEx. ”

Amazon stock fell more than 2% on Friday.

Anyhow, third-quarter earnings season begins next month, and FedEx’s warning is adding to analysts’ sour outlook for earnings expectations.

According to FactSet data, third-quarter earnings per share estimates are down more than 5.5% since the end of June. That’s the largest quarterly drop since the second quarter of 2020 (when Covid-19 sent the United States into recession).

The FedEx announcement also comes as investors worry about a weaker economic outlook as the Federal Reserve aggressively hikes interest rates to bring inflation under control.

The September preliminary reading of the University of Michigan Consumer Sentiment Index added to investors’ concerns on Friday, hitting 59.5, the highest since April but below economists’ estimates. The September survey showed that respondents do not expect high prices to go away any time soon. Consumers said they expect inflation to be 4.6% over the next 12 months and 2.8% over the next five years.

That’s bad news for investors, as expectations can be a self-fulfilling prophecy: If consumers expect prices to stay high, they’re likely to spend more and demand higher wages, while companies could hike prices to meet higher demand and meet higher wages. If expectations are lower, they could rein in spending and demand lower wage increases.

Friday’s consumer sentiment report is the last big chunk of economic data before the Federal Reserve meets next week to discuss monetary policy and whether it will hike rates again in its fight against inflation.

Still, most of this week’s market loss came on Tuesday after a key inflation gauge, the August CPI report, came in hot. The Dow slipped 1,200 points on the news — its worst drop since June 2020.

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