FedEx Predicts Global Recession
Stocks have been under heavy selling pressure for the last few weeks, and that has only been amplified ever since FedEx reported earnings. Shares of FedEx dropped a whopping 22% after the company withdrew its financial guidance for the remainder of the year. FedEx noted they expect to fall short of their original revenue projections by as much as $500M. FedEx cited challenging impacts caused by a global recession as the main reason for the significant earnings miss.
FedEx is often highlighted as one of the key reports for investors to watch during earnings season. Given its business model, FedEx tends to provide a solid overview of the current economic climate. Their business relies on consumers to spend money buying and shipping goods. They also support retailers who maintain their products, supplies, and inventory. And they’re obviously a vital logistical piece within the supply chain and delivery lifecycle.
And unfortunately for investors, their gloomy outlook kept Wall Street seeing red. All three major indexes logged their fifth straight losing week. The Dow dropped 4.0% for the week, and S&P 500 and the Nasdaq dropped 4.65% and 5.0% respectively. Currently, over 90% of stocks within the S&P are expected to take losses in 2022.
FedEx Shares Plummet
FedEx’s 22% selloff marked the worst one-day drop in its share price's history. This erased the previously held record of a single-day 16% plunge, which took place way back in 1987 during the stock market crash. FedEx shares are now down over 32% in the last month and nearly 40% for the year.
During their earnings call, the company noted some of the troubling economic data they were seeing, particularly within Asia and Europe. FedEx stated they’re seeing a weakening in the global economy. They also noted that demand for packages also weakened considerably during the final weeks of the quarter.
Third quarter earnings-per-share estimates have dropped nearly 6% for the stock since June. That’s the largest drop for a quarter since the second quarter of 2020 (when Covid sent the economy into another recession). Concerns are rising that this announcement could contribute to broader declines, in a market that’s already struggling for any signs of positive market sentiment.
What Else We’re Watching
FedEx’s latest report comes at a time when investors are already worried about a weakening economy while the Fed has worked relentlessly to try and tame inflation. Traders got worse news on Friday when the consumer sentiment index for September was released, showing worse than expected numbers. The index came in with its worst month since April.
This report highlighted that consumers do not expect high prices to go away anytime soon. This is one of the last key pieces of economic data that will be released before the next Federal Reserve meeting scheduled for this upcoming week. This meeting will be used to identify if the Fed believes another round of rate hikes will be necessary to continue the fight against inflation.
What it Means: Last week was another rough week for traders, with all indexes taking losses. The bad news got even worse for Wall Street after FedEx reported earnings late in the week. A huge earning miss and a prediction for a ‘global recession’ had stocks under heavy selling pressure. There’s very little optimism in the current market with another huge meeting from the Fed on deck. Despite inflation slowing, prices are still much higher than they should be. This could very likely prompt another significant rate hike from the Fed.
Biden Outlines Plans for Crypto Regulations
Last Friday, President Biden doubled down on his desire to emphasize crypto regulation under his administration. He was quoted as saying “US government agencies need to prioritize digital sector enforcement and identify gaps in current crypto regulations. He cited the potential for misuse that has been growing in the global finance sector.
Going forward, the Treasury Department will also lead a group of government agencies that will consider a central bank digital currency, although the White House stopped short of properly endorsing a digital dollar. He went on to say, “innovation without adequate regulation can lead to significant harm to our financial systems..”
Additionally, Biden is urging key agencies like the SEC to begin issuing guidance and rules for the digital ecosystem, including how to ensure crypto will not be used for fraud or money laundering. Biden is also asking Congress to amend the Bank Secrecy Act, to also include crypto exchanges and platforms for NFTs.
Biden is also looking for recommendations from several agencies to help create a federal framework to oversee non-bank payment providers.
What it Means: Crypto surged past $3 trillion in value last year, but the sector has been down huge all year with the rest of the market. Investors have been looking to de-risk their portfolios and this has played a key role in crypto’s downturn. But as we’ve noted in the past, the use cases for crypto continue to expand, as does total adoption.
One of the biggest unknowns within crypto and the entire sector is how it will be regulated. Going forward, it’s clear this will be a new priority agenda item for Biden and his current administration.
Is Business Travel Back?
Are we seeing business travel return back to pre-pandemic levels? The CEO of Expedia certainly seems to think so. Expedia CEO Peter Kern has been very outspoken during the entire pandemic. In 2020, when things seemed at their worst, he was adamant that we would see a return of business travel.
Last week, he proudly proclaimed “business travel is back, just like I’ve been predicting all along.” He went on to discuss the long lines and delays we’ve been seeing at airports as more proof of his theory. Conversely, one could argue airports are still seeing the effects of Covid, the great resignation, and a decreasing number of available pilots.
Last year, Expedia agreed to sell its corporate travel arm to American Express Global Business Travel. As part of the deal, Expedia became a shareholder in the Amex GBT while forming what is expected to be a long-term strategic project.
Expedia also operates on behalf of others in the travel sector, most notably Hotels.com, Hotwire, Travelocity, and Orbitz.
What it Means: With all those brands under one roof, Expedia should certainly have a good outlook on the entire travel sector. But as businesses continue to operate in a hybrid model, it’s too early to definitely state business travel is back. What has come back though, is consumer travel. We’ve got over a year of data highlighting how people are eager to travel after being locked inside during the pandemic. Travel has been one of the more resilient sectors as of late, given the extensive pent-up demand from consumers.