Recession Fears Keep Markets Negative; FDX and COST Report

The aftermath of the latest Fed monetary policy meeting yesterday has cast a bearish pall over thestock market today as worries about a deep and wide recession in the U.S. in 2023 is keeping a wet blanket on positive sentiment. The Dow, now precariously close to breaking back through 30K for the first time in a year and a half, lost another 100+ points, -0.36% on the day. The Nasdaq dumped another -153 points, -1.37% on the day. The S&P 500, now down three days in a row, was -0.85%, while the small-cap Russell 2000 performed the worst: -2.26%.

The Dow was at session highs just 10 minutes prior to the close, which gives some indication how precipitous this late-day drop was. The Dow is also the closet major index toward breaching its 52-week-lows, though the others aren’t too far behind. For the S&P, travel, leisure and casino stocks led the path downward today. The S&P is now -22% from its highs, reached in the opening sessions of January 2022.

The inverted yield curve between 2-year Treasuries and 10-years narrowed a tad over the course of the day to 42 basis points. This is still high, and earlier today we had hit a 40-year peak in this spread. To say nothing of the fact that an inverted yield curve — one that has now gone on almost as long as the Russia-Ukraine war — already suggests the economy is in recession. Strong labor force figures continually stand out like a sore thumb amid all this recessionary evidence, however, so the jury’s ultimately still out.

One week after lowering expectations for its fiscal Q1 2023 earnings report, delivery and logistics giant FedEx FDX put out mixed results today. The earnings report was scheduled to come out after the market’s closing bell today, but due to a reported filing error was released early. Earnings of $3.44 per share missed the Zacks consensus $3.69 (and well off the year-ago quarter’s $4.37 per share), while sales in the quarter of $23.2 billion came in-line with expectations.

FedEx also announced major cost-cutting initiatives, between -$2.2 billion and -$2.7 billion for fiscal 2023. These cuts include $1.5-1.75 billion in FedEx Express and up to $500 million in closing FedEx Office stores and operating expenses. The company also noted pending +6.9% rate increases in Express and Ground deliveries. Guidance for fiscal Q2 sales are roughly in-line with the Zacks consensus, but earnings for next quarter are expected to be way down from earlier estimates. The company brought a Zacks Rank #5 (Strong Sell) into the earnings release.

Costco COST also posted fiscal Q4 results after the closing bell, beating estimates on both top and bottom lines: earnings of $4.20 per share outpaced the Zacks consensus by 9 cents, and 30 cents higher per share than a year ago; sales of $72.09 billion narrowly surpassed the $71.84 billion expected. Led by U.S. comps of +15.8% in the 16-week quarter, quarterly membership numbers also rose notably year over year. Nevertheless, after-market selling has brought the stock down -3% on the news. The stock is still +7.6% year to date.

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