U.S. stocks ended lower Friday, trimming losses into the close but still booking big weekly losses, after a warning from FedEx Corp. rattled investors amid ongoing worries that another interest rate hike by the Federal Reserve next week heightens recession risks.
How did stock indexes trade?
The Dow Jones Industrial Average
fell 139.4 points, or 0.5%, to close at 30,822.42, after dropping 412 points at its session low.
The S&P 500
dropped 28.02 points, or 0.7%, to finish at 3,873.33.
The Nasdaq Composite
shed 103.95 points, or 0.9%, to end at 11,448.40.
For the week, the Dow fell 4.1%, while the S&P 500 dropped 4.8% drop and the Nasdaq Composite tumbled 5.5%. The S&P 500 and Nasdaq each saw their biggest weekly percentage drops since June, while the Dow had its worst week since the stretch ending Aug. 26, according to Dow Jones Market Data.
What drove the market?
U.S. stocks ended down Friday, deepening losses for the week amid heightened fears of a recession.
FedEx Corp.’s profit warning late Thursday is a sign of a slowing economy, said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, in a phone interview Friday. Landsberg, who is expecting a “hard landing” for the U.S. economy as the Federal Reserve keeps tightening its monetary policy, said “I would not be buying the equity dip in the U.S. or in Europe.”
shares plunged 21.4% after the global shipper and economic bellwether late Thursday withdrew its annual outlook and forecast sharply lower quarterly profit and lower revenue. The news put pressure on other shipping stocks and dented overall investor sentiment, analysts said, as FedEx CEO Raj Subramaniam told CNBC late Thursday that the global economy was likely headed for a recession.
“The fact that FedEx expects the US economy to enter into a recession has made traders trade carefully, and there aren’t many who are willing to buy the market,” said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients. “It is highly likely that we will see a similar message from other companies in the coming days as well, and that may make the overall sentiment even more adverse.”
Another blow came from General Electric Co.
whose shares fell 3.7% after the company’s chief financial officer Carolina Happe said at an investor conference that continued supply-chain pressures were putting the conglomerate under pressure.
“Investors should worry about a recession” and their positioning for it, said Landsberg. He said that he likes the healthcare, utilities, consumer staples sectors in the U.S. and discount retailers such as Dollar General Corp
Many analysts have trimmed their forecasts for company earnings for the third quarter. According to data from FactSet, earnings growth expectations for the S&P 500 index 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 third-quarter earnings expectations over the last 2-3 months for every sector in the S&P 500 except energy, and seven out of 11 sectors in the index are now expected to show outright year-over-year declines in earnings, compared with only three in the second quarter.
Investors have endured a tough week that included the worst one-day losses since June 2020 for stock markets on Tuesday after a surprise jump in U.S. consumer price inflation in August that has many nervously looking toward next week’s Fed meeting. Some forecasts are even calling for a 100 basis-point rate hike next week.
The stock market has further to fall, as “equity markets are not priced for a recession,” according to Alessio de Longis, senior portfolio manager at Invesco. He said in a phone interview Friday that he expects a recession in the next 12 months as the Fed aggressively hikes rates to bring down inflation.
In economic data released Friday, the University of Michigan’s consumer sentiment index rose to 59.5 in September and hit a five-month high, reflecting public relief at falling gasoline prices. The survey found consumers still think inflation will fall sharply in the long run. They expect prices to rise an average of just 2.8% a year over the next five years. That’s down from 2.9% in the prior month.
Consumer sentiment is “off the lows,” said de Longis, “but it remains at deep recessionary levels.”
Meanwhile, the CBOE Volatility Index
climbed above 26 Friday, according to FactSet data. That compares with a 50-day moving average of 23.6.
“We’re starting to get back to some elevated levels,” Landsberg said. But “it’s still not to where I would say there’s a lot of fear in the market.”
Which companies were in focus?
Shares of FedEx rival United Parcel Service Inc.
slid 4.5%, while retailers such as Amazon.com Inc.
and Target Corp.
also finished lower. FedEx’s gloom spread overseas with Deutsche Post AG
and Royal Mail PLC
Hear from Ray Dalio at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.
––Barbara Kollmeyer contributed to this report.