As if the US economy wasn’t bad enough, there could be a global recession just in time for the holidays. This was the warning from FedEx CEO Raj Subramaniam on Friday, when the shipping giant’s shares fell 21%, the biggest one-day plunge in its history.
The ominous warning came late Thursday on the heels of an announcement that FedEx would fall $500 million below its revenue target.
Keep in mind that this is after the pandemic and after what should have been the worst crisis in the supply chain.
“FedEx drops more than 22% in the open, the biggest drop since at least 1980.” Now warn of a global recession.
But keep bragging about your booming economy, Joe.
— Thia is with … 😏✌️💋🔥 (@ThiaBallerina) September 16, 2022
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Don’t get better
So what is the reason for this? FedEx says global demand for parcels has fallen, especially in the final weeks of the fiscal quarter. The company said it does not expect the situation to improve in the near future.
TNZT reports that FedEx revenues are expected to fall by more than 40%, which would be crippling for just about any business. But what it means for the broader economy is that they expect a massive drop in shipping.
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Think of all the things that end consumers have now shipped, as opposed to in-store purchases. Or goods that are not top capital goods or finished consumer products. Reduce that by 40% and you’ll start to see the photo.
FedEx CEO Raj Subramaniam recently appeared with TNZT’s Jim Cramer, where he talked about some of the measures his company is taking to keep costs down. Kramer asked him, “Raj, do you think there is going to be a global recession?” Subramaniam’s response: ‘I think so. These numbers don’t predict very well.”
Subramaniam continued: “U.S. consumers are definitely spending less. You know the US is somewhat isolated because the US dollar is the currency of choice for the world, and there is some isolation there, but I also see the US slowing down.”
To stay ahead of an impending global recession, FedEx has stepped into what Subramaniam calls its “cost management mode” by taking measures such as reducing flights, temporarily parking some aircraft and reducing the number of employees.
About 90 FedEx office locations will be closed, as well as five corporate offices.
As if we didn’t need more proof that the… #economy is in a #recession, #Fedex delivered it today. The earnings warning and planned layoffs caused the stock to crash 22%, its biggest one-day drop in 40 years. Because consumers pay more but buy less, Fedex has to ship fewer packages.
— Peter Schiff (@PeterSchiff) September 16, 2022
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Most recent dive
FedEx’s stock uplift followed a volatile week for US equities. Following a discouraging August inflation report on Tuesday, the stock market fell nearly 1,300 points in one day last week, the most since June 2020.
Dow Jones economists’ forecasts weren’t much better. The forecast was for headline inflation to fall by 0.1% and core inflation to rise to 0.3%. When the Fed meets this week, another 75-point rate hike is expected. Ironically, the latest inflation report came out and the stock market fell on the same day the Biden administration celebrated the passing of the “Inflation Reduction Act.”
I think before you do anything in the stock market today, you should go back to my interview last night with the Fedex CEO, Raj, Subramaniam, because it’s a bit chilling. The market is now almost completely split… And you don’t want to own the wrong part!!
— Jim Cramer (@jimcramer) September 16, 2022
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Anticipation of rate increase
Early Monday, the Dow Jones Industrial Average was 67 points lower. The S&P 500 and Nasdaq Composite were also slightly down as all eyes are on the Federal Reserve’s two-day meeting starting Tuesday.
Adam Crisafulli is the founder/president of Vital Knowledge Market Commentary. He said:
“It has been a very calm session so far. Stocks have climbed from their early morning lows, but sentiment is still very bleak. The consensus playbook for the week seems to anticipate a brief rally around the FOMC, which most people plan to use as an opportunity to make gains in preparation for further downturns (a return to the June lows is believed by many considered inevitable). ”
FedEx is not alone. Several companies saw record lows on Monday, including Charter Communications at a low since March 2020 and Hasbro at a low since August 2020. Declines in such disparate sectors are not an encouraging sign.
Raj Subramaniam also told Jim Cramer, “We are a reflection of everyone’s business, especially the high-quality economy in the world.”
Asked about FedEx confirming we’re already in recession, the Biden Admins said@HBousheysays it’s not their fault, citing Covid, Ukraine and Puerto Rico losing electricity because of “climate change” pic.twitter.com/e0oCW3YRpJ
— Tom Elliott (@tomselliott) September 19, 2022
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