Why FedEx’s earnings warning is such bad news for the US economy

Why FedEx’s earnings warning is such bad news for the US economy

FedEx Corp. has bad news for investors, but what the logistics company’s huge profit warning says about the US economy could be even worse.

“The FedEx news was pretty harsh. But when I read it, I wasn’t surprised,” Carl Riccadonna, chief U.S. economist at BNP Paribas, told MarketWatch on Friday. He said it fits with his view that a “massive slowdown” is underway for the US economy.

FedEx FDX,
-21.60%
and other logistics and delivery companies are “a big bellwether for the economy,” Riccadonna said. “They tell you about top economic conditions.”

FedEx late Thursday cut its profit forecast, pulled its outlook for the year and called for a half-billion-dollar deficit.

See also: US stocks sink as FedEx warning rattles investors on track for big weekly losses

The global logistics and shipping company represents “the pulse of global goods activity,” said Jack Ablin, chief investment officer at Cresset Capital.

“Global shipping activity is in a downward trend. Weekly truck demand, after peaking last February, has been in freefall,” Ablin said. Companies that “doubled and tripled orders during supply chain shortages now face plenty of inventory.”

FedEx’s warning offered little detail, pinpointing deficiencies in slowdowns in Asia and Europe.

Wall Street was quick to point out that other parts of FedEx’s business, including its express service, were also troubled.

The stock fell more than 22% on Friday, looking poised to close at its lowest price in more than two years and suffer its worst one-day percentage decline since April 1978.

Several other U.S. corporate giants have issued warnings or reported quarterly earnings well below Wall Street expectations, including Target Corp. TGT,
-0.44%
and Walmart Inc. wmt,
+0.40%.

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Retailers are also struggling to adjust to an inventory glut that has been strained by the pandemic and supply chain problems, and as inflation has led some consumers to delay purchases or look for cheaper alternatives to products they usually buy.

It may be too early to tell whether other companies will issue similar earnings warnings or report lower earnings, potentially roiling markets further in the coming weeks and months. Analysts “have been slow to downgrade their earnings estimates” for corporate earnings, Cresset Capital’s Ablin said.

Some companies may “defy the math,” but ultimately, macroeconomic trends drive microeconomic stories, BNP Paribas’ Riccadonna said.

“[I] Think you’re going to see more businesses talking about the slowing economy, less pricing power,” Riccadonna said. And in turn, “margin compression and the need to liquidate inventory” means companies will need to “characterize prices.”

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