The stock market ended a bleak week with a slight dip on Friday, driven by the bleak FedEx outlook as investors remain fearful of inflation data and expectations of rate hikes.
The Dow Jones Industrial Average fell 0.45% or 140 points, recovering from a 400-point drop in the morning thanks to a late rally, while the S&P 500 fell 0.68% and the tech-heavy Nasdaq Composite fell 0.88% .
The Dow closed at a two-month low, falling more than 1,300 points, or 4.2%, this week in the index’s worst week since the first week of June.
The decline was largely attributable to FedEx, which fell 21.4% to $161.02 after the company missed earnings and sales estimates and retracted its full-year forecast amid dwindling demand.
FedEx shares are down nearly 50% from a May 2021 high of $314.81.
FedEx’s decline trickled down to competitors, with shares of UPS and XPO Logistics falling 4.7% each.
Much of the decline this week came on Tuesday, when the Dow, S&P and Nasdaq all experienced their worst day of 2022 after the Labor Department’s red-hot August inflation report.
This is the sixth straight week that the S&P 500 is up more than 1%, the second longest streak in at least 70 years, according to Bespoke Investment Group. The longest period occurred from March 2020 to May 2020, when the index moved more than 1% for 10 consecutive weeks during the early days of the Covid-19 pandemic.
In its quarterly earnings report after Thursday’s market close, FedEx announced significant cost-cutting measures in response to “lagging” global shipping volumes due to poor macroeconomic conditions. When asked by TBEN whether he sees his company’s stagnation as a sign of a global recession, FedEx chief executive Raj Subramaniam said, “I think so,” explaining that the numbers “don’t bode very well.”
Ipek Ozkardeskaya, senior analyst at Swissquote, told Bloomberg: “The FedEx warning came as a blow. It is a solid sign that the economy has begun to slow.”
Edward Moya, a senior market analyst at OANDA, noted in a note to customers that the market may have overreacted to FedEx guidelines, writing: “FedEx may have some tough quarters ahead of us, but this shouldn’t be the story. its indicating doom and gloom times are here to stay.”
What to watch out for
Analysts are increasingly seeing a 100 basis point rate hike by the Federal Reserve as a possibility. The Fed hasn’t raised rates that much in more than 40 years, and the S&P 500 fell by an average of 2.4% a month after the Fed’s seven 100 basis point rate hikes between 1978 and 1981, according to CFRA Research.
This is what happens to stocks when the Fed raises interest rates by 100 basis points (TBEN)