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Recession Fears Keep Markets Negative; FDX and COST Report – September 22, 2022

The aftermath of the Fed’s latest monetary policy meeting yesterday has sent the stock market into a tailspin today as concerns about a deep and broad recession in the US in 2023 keep positive sentiment under a wet blanket. The Dow, now dangerously close to breaking the 30K for the first time in a year and a half, lost another 100+ points, -0.36% on the day. The Nasdaq dropped another -153 points, -1.37% on the day. The S&P 500, now down three days in a row, was -0.85%, while the small-cap Russell 2000 underperformed at -2.26%.

The Dow was at the highest level of the session just 10 minutes before the close, indicative of how abrupt this late-day decline was. The Dow is also the key index for breaking the 52-week lows, although the others aren’t too far behind. For the S&P, travel, leisure and casino stocks led the way down today. The S&P is now -22% from its all-time high reached during the January 2022 opening sessions.

The inverted yield curve between 2-year Treasuries and 10-year Treasuries narrowed slightly to 42 basis points over the course of the day. This is still high, and earlier today we had a 40-year peak in this spread. Not to mention that an inverted yield curve — one that has now lasted nearly as long as the war between Russia and Ukraine — is already suggesting the economy is in recession. However, strong workforce numbers constantly stand out like a sore thumb amid all this recessive evidence, so the jury is still out in the end.

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One week after lowering expectations for fiscal Q1 2023 earnings report, delivery and logistics giant FedEx (FDX free report) mixed results today. The earnings report was due to come out today after the market’s closing bell, but was released early due to a reported filing error. Earnings of $3.44 per share missed the Zacks consensus at $3.69 (and well below the previous quarter’s $4.37 per share), while revenue in the quarter was in line at $23.2 billion with expectations.

FedEx also announced major cost-cutting initiatives, between -$2.2 billion and $2.7 billion for fiscal year 2023. These cuts include $1.5-1.75 billion in FedEx Express and up to $500 million in closing FedEx. Office stores and operating expenses. The company also traded in anticipation of +6.9% rate hikes in Express and Ground deliveries. Fiscal sales guidance in the second quarter is roughly in line with Zacks consensus, but earnings for the next quarter are expected to be much lower than previous estimates. The company released a Zacks Rank #5 (Strong Sell) in its earnings release.

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Costco (COST free report) also posted fourth-quarter post-closing fiscal results that exceeded both over and under estimates: earnings of $4.20 per share surpassed the Zacks consensus by 9 cents and 30 cents per share higher than a year ago; Revenue of $72.09 billion narrowly surpassed the expected $71.84 billion. Led by US Comps of +15.8% in the 16-week quarter, quarterly membership numbers also increased significantly year over year. Nevertheless, aftermarket sales drove the stock down -3% on the news. The share is still +7.6% to date.

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