Before the Bell: Stocks Tumble as FedEx Sinks on Slumping Demand

Morning Markets

December S&P 500 futures (ESZ22) this morning are down by -1.03% at a 1-3/4 month low.  Economic concerns are weighing on stocks this morning, led by a more than -20% plunge in FedEx in pre-market trading after the company withdrew its earnings forecast, citing weakening business conditions.  Also, rising bond yields are weighing on the overall market as the 10-year T-note yield climbed to a 3-month high today at 3.483%.  The markets have fully priced in a +75 bp interest rate increase by the Fed at next week’s FOMC meeting.

Today’s quarterly expiration of stock index futures and options, known as triple witching, could increase volatility and exacerbate moves in stock prices today. 

Negative carry-over from a -2.3% slump in China’s Shanghai Composite to a 3-1/2 month low is also weighing on U.S. equity markets this morning. Chinese stocks fell despite better-than-expected economic news on industrial production and retail sales as the improvement was explained away by a low base for comparison from a year ago.  Also, today’s economic news shows China’s housing crisis deepened after China new home prices in August fell for the twelfth straight month.

The Euro Stoxx 50 today is down -1.30% at a 1-week low.  Mail and parcel delivery companies are selling off today after FedEx’s warning on demand.  Also, technology stocks are under pressure today, with ASML Holding down nearly 2% after South Korea reported that Aug shipments of its dynamic random access memory chips fell the most in 3 years.  In addition, stocks retreated after hawkish ECB comments today signaled additional ECB interest rate hikes in the near term. 

ECB President Lagarde said, "the ECB must focus on our price-stability target, which we've set at 2% over the medium-term, so we have to use all the monetary policy tools available to us to reach this target."

ECB Vice President Guindos said, "the slowdown of the economy is not going to take care of inflation on its own, so more ECB rate hikes might come in the next few months."

Eurozone Aug new car registrations rose +4.4% y/y, the first increase in 14 months.

Asian markets today closed lower.  China’s Shanghai Composite Index closed down -2.30%, and Japan’s Nikkei Stock Index closed down -1.11%. 

China’s Shanghai Composite Index today tumbled to a 3-1/2 month low.  Concerns about a weak economy undercut stocks as better-than-expected Chinese economic news today on industrial production and retail sales were mainly driven by a low base for comparison a year ago.  Real estate and property stocks fell after China August home prices fell for the twelfth consecutive month.  Also, Chinese brokerage companies fell after the State Council released guidelines encouraging the industry to cut fees further to help smaller firms and the economy. Economic concerns continue to weigh on the yuan, which dropped to a new 2-year low of 7.0254 yuan/USD today. 

China Aug industrial production rose +4.2% y/y, stronger than expectations of +3.8% y/y and the biggest increase in 5 months.

China Aug retail sales rose +5.4% y/y, stronger than expectations of +3.3% y/y and the biggest increase in 11 months.

China Aug new home prices fell -0.29% m/m and -2.1% y/y, the twelfth consecutive month home prices have fallen.

Japan’s Nikkei Stock Index today fell to a 1-week low on negative carry-over from Thursday’s slump in U.S. stocks.  Also, Japanese technology stocks fell today on concerns about global demand after South Korea reported that Aug shipments of dynamic random access memory chips sank -24.7% y/y, the biggest decline since 2019. 

Pre-Market U.S. Stock Movers

FedEx (FDX) plunged -20% in pre-market trading after it reported Q1 preliminary adjusted EPS of $3.44, well below the consensus of $5.10, and then pulled its fiscal 2023 earnings forecast, citing weakness in Asia and challenges in Europe and said conditions could deteriorate further in the current period.  United Parcel Service (UPS) is down more than -6% on the news, XPO Logistics (XPO) is down more than -5%, and Amazon.com (AMZN) is down more than -2%.

Adobe (ADBE) is down more than -2% in pre-market trading, adding to Thursday’s -16% plunge,  after Barclays downgraded the stock to equal weight from overweight, saying the company’s purchase of Figma “makes it hard to argue for multiple expansion.”

Uber (UBER) dropped more than -5% in pre-market trading after it shut down its internal Slack messaging as it investigates a cybersecurity breach.

International Paper (IP) tumbled more than -5% in pre-market trading, and Packaging Corp of America (PKG) dropped more than -4% after Jeffries downgraded both stocks to underperform from hold. 

Huntsman (HUN) sank more than -7% in pre-market trading after cutting its Q3 adjusted Ebitda forecast to $260 million-$280 million from a previous forecast of $310 million-$355 million.

General Electric (GE) tumbled more than -5% in pre-market trading after CFO Happe said during a Morgan Stanley conference that the company was continuing to see supply-chain pressures. 

Alcoa (AA) is up more than +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight on a bullish aluminum view. 

Applied Optoelectronics (AAOI) surged over +20% in pre-market trading after agreeing to sell its manufacturing facilities in China to Yuhan Optoelectronic for $150 million. 

Shoals Technologies (SHLS) gained more than +1% in pre-market trading after Cowen upgraded the stock to outperform from market perform.  

Today’s U.S. Earnings Reports (9/16/2022)

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