FedEx (FDX) didn’t deliver for the bulls. The S&P 500 (SPX) collapsed early Friday after executives at the logistic giant warned of a $500 million revenue shortfall in the current quarter, and a global recession in 2023, states Jon Markman, editor of Strategic Advantage.
The news dovetails with the larger bear narrative about the crumbling macroeconomic outlook. Unfortunately for the doomsayers, the benchmark S&P rallied modestly into the close to finish at 3,873, down only 0.7%. Bulls should not get too excited, though. The late buying was probably more about traders settling expiring September option contracts.
The key takeaway from Friday is business is terrible at FedEx, a key facilitator to the biggest companies in the world. This means more corporate warnings are inbound.
There is a small gap for the benchmark down at 3,792. A near-term decline to that level seems inevitable, with more important support at 3,640, the June lows. Overhead resistance is 4,010, the declining 20-day moving average. Continue to sell rallies.
Strategic Trade
The order on Friday to buy ProShares Ultra Short S&P 500 (SDS) at $45.30 lmt gtc did not fill. That order is still live. If filled, set the target to sell all at $50.10 lmt gtc and set a stop at $43.10 stop. If this trade works, the potential upside target is +10.5% and the potential downside loss is -4.8%
The Backstory
The Dow dropped 0.5% to 30,821.5 and the S&P 500 was down 0.7% to 3,873.44 on Friday. Energy was the steepest decliner, with all sectors in the red except real estate and consumer staples.
Breadth favored decliners three-one, and there were 960 new lows vs 28 new highs. The leaders were Eve Holding (EVEX), Bowlero (BOWL), Jaws Mustang Aquicistion (JWSM), and AEA-Bridges Impact Corp (IMPX). Which is to say, there was no real leadership, wow.
For the week, the major market indexes reported sharp losses, with the Dow dropping 4.4%, the S&P 500 tumbling 4.8% and the Nasdaq shedding 5.5%. The US two-year yield fell 0.4 basis points to 3.87%. The ten-year rate fell less than one basis point to 3.45%.
FedEx CEO Raj Subramaniam on Thursday told CNBC that he expects the economy will enter a worldwide recession, citing volume declines in every segment globally. The parcel delivery group pre-announced preliminary fiscal first-quarter results below consensus estimates and withdrew its full-year outlook. Shares of the logistics industry bellwether plunged 21%, the most in the S&P 500.
The University of Michigan's preliminary consumer sentiment index rose to 59.5 in September from 58.2 in August, below expectations for an increase to 60 in a survey compiled by Bloomberg. Respondents saw one-year inflation expectations at 4.6%, down from 4.8% in August, while five-year inflation expectations fell to 2.8% from 2.9%. Too optimistic?
"University of Michigan inflation expectations may only matter if they don't decline on gas prices...otherwise the Federal Open Market Committee's mind is made up," Derek Holt, head of capital markets economics at Scotiabank, said, referring to a widely anticipated interest-rate increase of 75 basis points at the September 21 monetary policy meeting.
The Morgan Stanley Supply Chain Index continued its downward trajectory, dropping 4% month-on-month in August, marking the third consecutive improvement, according to a Friday note from the investment bank. "Supply chain frictions eased further in August, but at a slower pace," compared with June and July, as "lower global demand is playing a key role reducing bottlenecks," the note said.
