FedEx Falls, Taking the Market Along

FedEx shares had their worst day in decades, raising concerns that not only will the transportation sector fail to deliver, the company might bring the rest of the market down alongside it.  

Labor shortages, rail strikes and supply chain failures have hindered the performance of the railroad, truck and logistics companies. But dismal earnings projections from one of the world’s largest transportation companies has the potential to rattle the timbers of the global economy.  

“We’re seeing that volume decline in every segment around the world, and ... we’ve just started our second quarter,” FedEx Chief Operating Officer Raj Subramaniam said on an appearance with CNBC on Thursday. “The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good.” 

In response to a question about whether he thought the decline in profits also signal an impending recession, Subramanian added, "I think so. These numbers ... don't portend very well." 

Memphis-based FedEx, the second-largest delivery company by revenue after United Parcel Service, was down 22% in afternoon trading. UPS had lost around 5%. Shares of the iShares U.S. Transportation ETF (IYT) fell 4.8%, while the SPDR S&P Transportation ETF (XTN) slipped 4.4%.  

Impending Market Downturns Ahead  

Analysts raised concerns that FedEx’s problems are a sign of spreading economic hardship.  

“The transportation sector is seen as a barometer of economic growth,” Neena Mishra, director for ETF research for Zacks Investment Research, said. “As the FedEx news suggested, the global economy is in bad shape right now with rising inflation and tightening monetary policies. The outlook obviously doesn't look good at all for these companies.”  

However, she added that the transportation company, and all those who had international operations, were far more susceptible to the volatility hitting European and emerging markets.  

Yet others say FedEx’s latest news foreshadows a more hesitant U.S. market.  

”The fact that FedEx expects the U.S. economy to enter into a recession has made traders trade carefully, and there aren’t many who are willing to buy the market,” said Naeem Aslam, chief market analyst at AvaTrade, in a note.  

“It is highly likely that we will see a similar message from other companies in the coming days as well, and that may make the overall sentiment even more adverse,” Aslam said. 

Both the S&P and the SPDR S&P 500 ETF Trust (SPY) slipped 0.9% in the middle of the trading day in New York.  

Contact Shubham Saharan at [email protected]