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Stocks sank on Friday, deepening a sell-off across U.S. equity markets, leading to a sizable weekly loss for all three major averages. The declines came as traders weighed an ominous warning from FedEx about the global economy.
The S&P 500 fell 0.7%, while the Dow Jones Industrial Average shed 140 points or 0.5%. The technology-heavy Nasdaq Composite declined 0.9%. The indexes clawed back from session lows of more than 1% but still logged their worst week since June.
FedEx (FDX) was in the spotlight Friday after the company withdrew its full-year guidance and delivered messaging around its earnings outlook, stating that macroeconomic trends have “significantly worsened.”
Shares of FedEx tanked 21.4%, the most significant daily decline ever since the company went public in 1978. Its most considerable loss before Friday was a 16% drop on Black Monday in 1987.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” FedEx CEO Raj Subramaniam said in an earnings statement. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations.”
With the third-quarter reporting season on deck, several strategists have soured their earnings expectations and trimmed their forecasts.
According to data from FactSet Research, earnings growth expectations for the S&P 500 stand at an increase of 3.7% for the third quarter, down sharply from expectations of 9.8% growth at the end of June.
Analysts have cut Q3 earnings expectations over the last 2-3 months for every sector in the S&P 500 except energy. Seven of eleven sectors in the index are now expected to show outright year-over-year declines in earnings, compared to only three in the second quarter.
Morgan Stanley’s lead U.S. equity strategist Michael Wilson, a vocal stock market bear, has said that while the first half of the year was shaped by inflationary pressures and hawkish Federal Reserve policy, the remainder will be fueled by slowing growth and weakness in earnings.
“While acknowledging the poor performance in equities year-to-date, we do not think the bear market is over if our earnings forecasts are correct,” Wilson said in a recent note to clients.
On the economic data front, the University of Michigan’s consumer sentiment survey showed one-year inflation expectations fell to 4.6% in September, the lowest reading in a year, even as last week’s CPI print came in higher than expected.
The benchmark U.S. 10-year Treasury note held above 3.46% in the bond market, while the policy-sensitive 2-year Treasury spiked further, hitting 3.9%, the highest level since 2007.
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