Stocks fell Friday as Wall Street headed toward a big losing week, and traders absorbed an ugly earnings warning from FedEx about the global economy.
The Dow Jones Industrial Average dropped 325 points, or 1%. The S&P 500 and Nasdaq Composite slid 1.3% and 1.7%, respectively.
Shares of FedEx plunged 24% after the shipments company withdrew its full-year guidance and said it will implement cost-cutting initiatives to contend with soft global shipment volumes as the global economy “significantly worsened.”
Transport stocks are typically seen as a leading economic indicator, so FedEx’s announcement could contribute to broader declines on Friday.
“It very much is a bellwether, certainly traditionally,” Robert Teeter of Silvercrest Asset Management said on CNBC’s “Worldwide Exchange.” “[But] I think one of the things we’ve seen in this pandemic and post-pandemic economy is that different sectors are having different cycles.”
“No doubt the news was not positive, and it certainly is a tell on the importance of margins going forward, which we think is a company by company issue,” Teeter added.
The three major averages were on pace to notch their fourth losing week in five as a comeback rally looks increasingly like a bear market bounce. The Dow Jones Industrial Average has declined 4.5% this week, while the S&P 500 is 3.7% lower. The Nasdaq Composite is down 6%, headed toward its worst weekly loss since June.
The bulk of the losses came on Tuesday following a surprisingly hot reading in August’s consumer price index report, with the Dow losing 1,200 points in its worst decline in two years.
Oil rises, but on track for losing week
Oil prices advanced on Friday but were still set for a third straight week of declines as macroeconomic concerns weigh. Traders fear that a global economic slowdown would cut demand for oil and other petroleum products.
West Texas Intermediate crude futures, the U.S. oil benchmark, added 0.7% to trade at $85.68 per barrel on Friday. For the week it’s down roughly 1.3%. Global benchmark Brent crude stood at $91.65 on Friday, for a gain of 0.9%. Over the last five session it’s down 1.3%.
“Energy prices are showing signs of stabilizing, despite the prevailing risk-off market tone,” TD Securities said Friday in a note to clients.
“With the weakness from positioning, sentiment and liquidity premia priced in, the market narrative is slowly shifting back toward structural tightness as the winter season looms on the horizon,” the firm added.
The S&P 500 energy sector is down 2.5% for the week.
— Pippa Stevens
S&P 500 has closed below its 200-day for the longest time since the Financial Crisis
The S&P 500 has continuously closed below its 200-day moving average since April 8, the longest such stretch since the Financial Crisis.
During the crisis, the S&P 500 first closed below its 200-day on Dec. 27, 2007, and did not close back above the technical support level until June 1, 2009.
— Gina Francolla, Samantha Subin
Consumer sentiment comes in slightly below expectations
The University of Michigan’s consumer sentiment index preliminary September reading came in at 59.5, just below a Dow Jones estimate of 60. That print was still slightly above August’s final reading of 58.2.
“With continued declines in energy prices, the median expected year-ahead inflation rate declined to 4.6%, the lowest reading since last September,” Surveys of Consumers director Joanne Hsu wrote. “However, it is unclear if these improvements will persist, as consumers continued to exhibit substantial uncertainty over the future trajectory of prices.”
“Uncertainty over short-run inflation reached levels last seen in 1982, and uncertainty over long run inflation rose from 3.9 to 4.5 this month, well above the 3.4 level seen last September,” Hsu added.
The data comes after a mixed week of economic reports that included an unexpected increase in the U.S. consumer price index.
— Fred Imbert
Stocks open lower, set for big weekly losses
The major market averages opened sharply lower on Friday morning, with the Dow falling more than 300 points. The S&P 500 is off by more than 1%.
The Nasdaq Composite continues to underperform. The tech-heavy index fell by 1.7% on Friday morning and has now lost more than 6% for the week.
— Jesse Pound
Inflation, Treasury yields means the market’s multiple should be lower, Bank of America says
Many Wall Street pros are skeptical of the stock market’s valuation, in part because many professional investors are predicting that earnings growth will slow substantially or even turn negative next year.
But the spike in Treasury yields this year makes makes the market look like it may be overvalued already, even without adjust earnings estimates, according to Bank of America’s Savita Subramanian.
“Stocks are cheaper, but still not cheap: the S&P 500 is trading at 18.4x trailing EPS and 16.7x forward (consensus) EPS – in line with average multiples in the 2010s. But if we factor in 8% inflation … multiples are far too high, and TINA (‘there is no alternative’ to stocks) is hard to argue amid a 4% cash yield by early 2023 (house view),” Savita Subramanian wrote. “These factors warrant, in our view, a lower multiple than what we enjoyed in the 2010s.”
— Jesse Pound
2-year Treasury yield breaks above 3.9%
The front end of the yield curve continues to make new highs, with the 2-year Treasury yield topping 3.9% on Friday. It is the first time the 2-year has had a yield that high since Nov. 1, 2007.
The 1-year Treasury yield, meanwhile, has surged well above 4% and was trading at 4.026% on Friday morning.
The 10-year Treasury saw milder moves, deepening the inversion of the yield curve.
— Jesse Pound
Deutsche Bank hikes Tesla price target, says shares can rally more than 30%
Expect shares of Tesla to rally as much as 32% as the electric vehicle giant boosts production at struggling factories and benefits from the government’s latest climate bill, Deutsche Bank says.
Analyst Emmanuel Rosner upped his price target on Tesla to $400 from $375 a share, citing the Inflation Reduction Act’s battery production credits and elevated production at its Texas and Berlin facilities.
“We view 2023 as a pivotal year in which Tesla continues to grow volume at a high pace, enters new segments with Cybertruck and Semi, optimizes its manufacturing footprint, and benefits from IRA which will lower its costs and boost demand,” Rosner wrote, while also beefing up the bank’s gross margin forecast for 2023.
Further upside to Wall Street’s estimates could come from Tesla’s driver assistance system it hiked prices on earlier this month, Rosner said. Margins should also improve as volume steps up.
Tesla’s stock is down roughly 14% this year.
— Samantha Subin
If inflation can’t be resolved without a recession, downside could be ‘substantial,’ Goldman says
As investors debate whether high inflation can be resolved without a recession, Goldman Sachs analyzed how different the market could look if the pessimistic view materializes. There are uncertainties at every step, the firm’s Dominic Wilson said in a note Friday.
However, “the basic story is simple. If only a signiﬁcant recession—and a sharper Fed response to deliver it—will tame inﬂation, then the downside to both equities and government bonds could still be substantial, even after the damage that we have already seen.”
— Tanaya Macheel
Morgan Stanley upgraded Alcoa following underperformance
Morgan Stanley upgraded shares of Alcoa to an overweight rating, saying the company’s free cash flow yield and a constructive outlook for aluminum prices will support shares of the metals giant.
“While we see underwhelming 2H22 results, mainly on the back of lower commodity prices and higher costs, we believe the market will see through these near term headwinds,” the firm wrote in a note to clients. Morgan Stanley added that the stock trades at a discount relative to its historical average multiple.
Shares of Alcoa have dropped 18% over the last week as fears rise around a coming economic slowdown, which would cut demand for metals like aluminum.
The stock added 1% during premarket trading Friday.
— Pippa Stevens
FedEx guidance cut drags down rivals
FedEx’s guidance cut appears to be weighing on related stocks on Friday morning.
Shares of shipping rival UPS fell more than 7% in premarket trading. XPO Logistics dropped 6%.
Transport stocks are often seen as a bellwether for the U.S. economy, so FedEx’s warning could create selling pressure across the board on Wall Street as investors prepare for a potential recession.
— Jesse Pound
Analysts bail on FedEx
FedEx’s earnings warning led to several analysts downgrading the stock, including JPMorgan’s Brian Ossenbeck.
“Against a backdrop of weaker economic activity and slower e-commerce growth with inconsistent execution, we believe FDX will continue trading at a depressed multiple until earnings stabilize with some potential help from cost saving initiatives,” Ossenbeck wrote as he downgraded the stock to neutral.
CNBC Pro subscribers can read more here.
— Sam Subin
Sterling falls to fresh 37-year low against dollar
The British pound has dropped below $1.14 for the first time since 1985.
Sterling fell as low as $1.135 at 8:50 a.m. London before rising slightly to $1.137.
The pound has plummeted against the greenback this year on a combination of dollar strength and U.K. recession warnings. Data published Friday morning showed U.K. retail sales fell more than expected in August.
— Jenni Reid
European markets slide 1% as recession, energy fears persist
European markets fell sharply in early trading as recession warnings, expectations for further rate hikes and continued volatility in the energy market weighed on stocks.
The pan-European Stoxx 600 was down 1.2% in the first hour, and U.K., French and German indexes all fell.
All sectors were in the red as energy, industrial and auto stocks dropped more than 2% each.
— Jenni Reid
U.S. 2-year Treasury yield briefly touches 3.9%
CNBC Pro: Top tech investor Paul Meeks picks between Apple and Samsung
Tech stocks suffered yet another sell-off this week as investors digested a hotter-than-expected August inflation report.
Amid a tough year for the sector, some investors are seeking refuge in the relative safety of mega-cap stocks. Top tech investor Paul Meeks weighs in on two such stocks and reveals which he prefers in the current environment.
Pro subscribers can read more here.
— Zavier Ong
China’s retail sales, industrial production for August beat estimates
China’s latest economic data release showed growth accelerated in August.
Retail sales increased 5.4% in August from the same period last year, much higher than July’s 2.7% and also above the Reuters forecast of 3.5%.
Industrial production grew 4.2% last month compared with a year ago, topping the prediction of 3.8% in a Reuters poll. Industrial output came in at 3.8% in July.
Fixed asset investment for January to August this year increased by 5.8%, beating the 5.5% estimate from Reuters.
— Abigail Ng, Evelyn Cheng
Major averages on pace for fourth losing week in five
All three major averages are on track to post their fourth losing week in five. Here are where markets stand through Thursday:
- The Dow Jones Industrial Average is down 3.7%
- The S&P 500 is down 4.08%
- The Nasdaq Composite is down 4.62%, heading toward its worst week since June 17
— Sarah Min
FedEx shares plunge after withdrawing guidance
Shares of FedEx tumbled 15.3% in after hours trading after the transport company withdrew its full-year guidance, and said it will implement cost-cutting initiatives to contend with a worsening macro.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations,” FedEx CEO Raj Subramaniam said in a statement.
The company said it is closing 90 office locations, shutting down five corporate office facilities and pausing hiring efforts, as part of those cost-cutting measures.
— Sarah Min
Stock futures open lower
U.S. stock futures opened lower on Thursday night as Wall Street headed toward its fourth losing week in five.
Dow Jones Industrial Average futures dropped by 137 points, or 0.44%. S&P 500 and Nasdaq 100 futures declined 0.51% and 0.60%, respectively.
— Sarah Min