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FedEx Warning Contributes To Extended Weakness On Wall Street

wallstreet sept17 16sep22 lt

After coming under pressure over the course of Thursday's session, stocks saw further downside during trading on Friday. The major averages all moved to the downside on the day, ending the session at their lowest closing levels in two months.

The major averages climbed well off their lows of the session going into the close but remained in negative territory. The Dow fell 139.40 points or 0.5 percent to 30,822.42, the Nasdaq slumped 103.95 points or 0.9 percent to 11,448.40 and the S&P 500 slid 28.02 points or 0.7 percent to 3,873.33.

With the extended downward move, the major averages all posted steep losses for the week. The Dow tumbled by 4.1 percent, while the S&P 500 plunged by 4.8 percent and the Nasdaq plummeted by 5.5 percent.

A steep drop by shares of FedEx (FDX) contributed to the weakness on Wall Street, with the delivery giant plunging by 21.4 percent to a two-year closing low.

The sell-off by FedEx came after the company reported weaker than expected preliminary fiscal first quarter results and withdrew its full-year guidance.

FedEx cited global volume softness and expectations for a continued volatile operating environment and warned it expects business conditions to further weaken in the second quarter.

The warning from FedEx added to concerns about the outlook for the global economy amid monetary policy tightening by central banks around the world.

Concerns about the outlook for interest rates also continued to weigh on the markets ahead of the Federal Reserve's monetary policy decision next week.

The Fed is widely expected to raise interest rates by another 75 basis points, although some see an outside chance for a 100 basis point rate hike.

"Wall Street was already nervous that the Fed's inflation fighting mission was going to trigger a recession, but now it seems corporate America is already showing signs that the economy is slowing," said Edward Moya, senior market analyst an OANDA.

Meanwhile, traders largely shrugged off a report from the University of Michigan showing a modest improvement in consumer sentiment and a decrease in inflation expectations.

The University of Michigan said its consumer sentiment index inched up to 59.5 in September from 58.2 in August. With the uptick, the consumer sentiment index reached its highest level since hitting 65.2 in April.

The report also showed the recent decline in energy prices has contributed to a decrease in inflation expectations.

One-year inflation expectations dipped to 4.6 percent in September from 4.8 percent in August, while five-year inflation expectations edged down to 2.8 percent from 2.9 percent.

The Fed has indicated that its aggressive monetary policy tightening partly reflects a desire to prevent elevated inflation expectations from becoming entrenched.

Sector News

With FedEx leading the way lower, transportation stocks showed a substantial move to the downside, resulting in a 5.1 percent nosedive by the Dow Jones Transportation Average. The average tumbled to its lowest closing level in well over a year.

Significant weakness was also visible among oil service stocks, as reflected by the 3.7 percent plunge by the Philadelphia Oil Service Index. The sell-off by oil service stocks came even though the price of crude oil ended the day nearly flat.

Natural gas stocks also saw considerable weakness amid an extended pullback by the price of natural gas, with the NYSE Arca Natural Gas Index tumbling by 2.8 percent.

Brokerage, chemical and biotechnology stocks also showed notable moves to the downside, while gold stocks saw some strength amid a modest increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan's Nikkei 225 Index slumped by 1.1 percent, while China's Shanghai Composite Index plunged by 2.3 percent.

The major European markets also moved to the downside on the day. While the German DAX Index dove by 1.7 percent, the French CAC 40 Index tumbled by 1.3 percent and the U.K.'s FTSE 100 Index slid by 0.6 percent.

In the bond market, treasuries showed a lack of direction over the course of the session before closing roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by just 1.1 basis points to 3.448 percent.

Looking Ahead

The Fed's interest rate decision is likely to be in the spotlight next week, overshadowing a large batch of housing data.

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