Stocks fell Friday as Wall Street wrapped up one of its worst weeks in months and traders reacted to an ugly earnings warning from FedEx about the global economy.
The Dow Jones Industrial Average dropped 139.40 points, or 0.45%, to close at 30,822.42. The S&P 500 shed 0.72% to end the week at 3,873.33. The Nasdaq Composite slid 0.90% to finish at 11,448.40. It was the worst week for the S&P 500 and Nasdaq since June.
Shares of FedEx plunged 21.4%, their worst daily drop ever, 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 indicator for the stock market as well as the economy, and FedEx pointed to weakness in Asia as one of the main reasons for its negative outlook. Shares of shipping rivals UPS and XPO Logistics dropped about 4.5% and 4.7%, respectively, and Amazon's stock fell 2.1%.
FedEx's announcement comes soon after a hotter-than-expected inflation report in the U.S. on Tuesday, which raised concerns that the Federal Reserve will be forced to cause a recession to cool prices. That data sparked a decline of more than 1,200 points for the Dow.
"There is a lot of nervousness about how the global economy can affect the U.S. economy now, while the U.S. economy is dealing with its own set of very serious issues. I think that dynamic is what people have woken up to," said Callie Cox, U.S. investment analyst at eToro.
The three major averages suffered their fourth losing week in five, and the summer comeback rally looks increasingly like a bear market bounce. The Dow Jones Industrial Average declined 4.1% this week. The S&P 500 lost 4.8%, while the Nasdaq Composite dropped about 5.5%.
The major averages closed lower again on Friday, their third negative day in four, to round out an ugly week for Wall Street. The Nasdaq was the worst performer for the day, down about 0.9%, and for the week, losing more than 5%.
— Jesse Pound
This week's mixed economic numbers, hot inflation reading and FedEx warning have brought the dreaded prospect of "stagflation" back into view. The term typically refers to the 1970s, when the U.S. economy suffered from low growth and persistently high inflation for much of the decade.
However, Goldman Sachs still sees a "soft landing" as a possibility, and Goldman's Chris Hussey wrote on Friday that the economy hasn't stagnated just yet, even after negative readings for GDP to start the year.
"In the same month that Fed Ex warned global shipments fell (August), the US added 315,000 net new non-farm payroll jobs and the unemployment rate rose only 20bp to a still ultra-low 3.7%. Importantly, wage inflation remains high but it did slow from July's pace. The US labor market is just not exhibiting many signs of 'stag,'" Hussey said.
— Jesse Pound, Michael Bloom
Goldman Sachs rate strategists expect the U.S. 10-year yield to peak at 4% by the end of 2023, and the 2-year at 4.3% by the second quarter.
The benchmark 10-year yield was lower at 3.44% Friday afternoon. The 2-year yield was at 3.85%, after rising above 3.9% earlier in the day.
Goldman Sachs strategists had previously expected a high this year of 3.3% in the 10-year but changed that forecast to 3.75% due to higher expectations for Federal Reserve rate hikes.
The strategists said in a note that they expect the front end of the curve to lead yields higher, and that the so-called "flattening" of the curve has also peaked. The yield curve inverted when the yield of the 2-year rose above the 10-year yield.
— Patti Domm
FedEx's warning about its business could be just one of many earnings estimate downgrades from companies and Wall Street analysts in the coming months.
As fears of a recession began to rise this summer, many portfolio managers and strategists have predicted that projected earnings growth for 2023 will prove to be too high.
While that projected earnings number has slowly slipped in recent months, it still shows more growth than a recession could likely support, suggesting that some harsh cuts could be in the pipeline.
"Earnings tend to adjust with a lag. The market sort of reacts ahead of those downward revisions. So some of the weakness, and certainly if it continues from here, is really starting to price in those coming downgrades," Jake Jolly, senior investment strategist at BNY Mellon Investment Management.
— Jesse Pound
The markets struggled across the board this week, but not all stocks were hit equally.
In the S&P 500, Adobe and FedEx fell around 25% and 23%, respectively. Nucor, Eastman Chemical and International Paper rounded out the top five worst week over week performers within the index, with each posting losses of around 16%.
All five far outpaced the index's weekly loss of 3.8%.
Boeing and Dow, Inc. each dropped nearly 9% week over week, making them the biggest losses in the Dow Jones Industrial Average. That's about double the index loss of 4.7%.
Home Depot, Honeywell and Microsoft followed, all falling around around 8% this week.
— Alex Harring
Declining stocks in the S&P 500 outnumber advancers by more than 4-to-1 on Friday, continuing a sharp reversal in market breadth and investor sentiment caused by Tuesday's CPI report.
"This year has been riddled with technical false starts. Few times in history have the A/Ds been so positive leading into a day with such overwhelming selling pressure," Frank Gretz, technical analyst at Wellington Shields, wrote in a note to clients. "There's always a risk in reading too much into one day, knee-jerk sort of reactions. Then too, the numbers say the report may have shifted investors' mindset. They now suddenly believe what the Fed has been screaming."
— Jesse Pound
Friday's sell-off is taking place on a "triple witching" day, which means there could be heightened market volatility as the end of the session draws nearer.
On triple witching days, options on stocks, stock indexes, and stock futures expire at the same time. these events take place four times a year and are associated with choppy trading action and high volumes.
— Fred Imbert
The Treasury market appeared to calm down in midday trading after a volatile week.
The 2-year Treasury yield, which jumped above 3.9% on Friday morning, is now little changed for the day near 3.87%. The 10-year Treasury yield is slightly lower. Yields move opposite of price.
The long-end of the curve is seeing the biggest moves today, with the 30-year Treasury yield rising more than 3 basis points to 3.517%.
— Jesse Pound
UBS believes Amazon shares remain attractive, particularly because of the ecommerce giant's retail growth.
"Between Census data and a possible 2nd Prime Day, we feel good about the retail business," analyst Lloyd Walmsely wrote in a note.
The firm reiterated its buy rating for Amazon, which is its top pick in the ecommerce space and in its overall internet coverage.
Shares of the commerce giant were down more than 3% in midday trading.
— Michelle Fox
The Dow Jones Transportation Average tumbled as much as 6% Friday morning, reaching a low last seen in February 2021. The index is on pace for its worst day since May 18 when it slumped 7.41%.
A sharp decline in shares of FedEx is dragging the Dow Transports index. The shipments company's share price tumbled more than 22%, dipping on disappointing news. On Thursday, FedEx withdrew its full-year guidance and announced it would close 90 offices, five corporate locations and defer hiring.
The Dow Transports' performance is particularly notable because the index is deemed a leading indicator for the economy's trajectory.
—Darla Mercado, Gina Francolla
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
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
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
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
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
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
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
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 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'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