FedEx reported disappointing earnings on Tuesday evening, with a pessimistic outlook for the future. Shares dropped over 12% with the company losing almost $8B in market cap.
What Does it Mean?
FedEx along with UPS is often used as a proxy for the general economy. Many believe that if packages are being sent at a considerably pace, this is indicative of a healthy consumer as well as business activity. The dire earnings report and future projection have many wondering if this is a glimpse into the future regarding the economy.
Why Do We Care?
On the one hand this may be a clear reflection of a softer economy therefore indicating lower inflation and a successful Federal Reserve. That said in our opinion, it is hard to extrapolate what is happening within FedEx across the general economy since Amazon is now shipping most of their own packages. In fact, it was reported in late November that Amazon was set to deliver nearly 6 billion packages this year, more than UPS or FedEx, when historically Amazon would contract with these companies for their shipping needs.
We feel this is more of a changing of the guard than a general economic indicator, in fact we wouldn’t be at all surprised to hear from Amazon that shipping was even bigger than expected due to the surging demand in on-line purchases this year.
The monthly Personal Consumption Expenditures (PCE) Price Index rose by 3.2% on an annualized basis, which was below the expectations of 3.3%. Core PCE fell by .1% to 2.6% on an annualized basis. Equity futures moved from red to green on the news.
What Does it Mean?
Considered by most to be the Federal Reserve’s most watched indicator, the current PCE reading continues to confirm the battle against inflation being all but over. In our opinion this gives further credibility to the idea of not a pause in rate hikes but the possibility of cutting rates sometime in 2024.
Why Do We Care?
Our position all year has believed interest rates and inflation were on their way down, which in turn would be favorable for stocks. We continue to see evidence of this and what was once a very lonely opinion is quickly being adopted by most. This doesn’t mean we are done moving higher, in fact our view continues to be optimistic regarding stocks into the new year and throughout 2024. That said, we feel some tax strategic selling may take place in the early days of 2024, which may spark a violent pullback giving those on the sideline a good opportunity to be a buyer.
Quint sat down with Schwab Network to discuss a few individual names heading into 2024 which may be found HERE.
Until next time
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