FedEx Projects Global Recession; Spike-Induced Pellagra?

The Consumer Price Index release on Tuesday (expected: -0.1% m/m, actual: +0.12% m/m) had the strongest impact on prices this week; equities sold off hard (more than 2% in five minutes). The S&P 500 Index (SPX) eventually closed the day at the dead lows, which is never a good sign, since it means “there was no bid” after a big drop – there were no shorts cashing in, etc. In addition to Tuesday’s kerfuffle, an announcement by the CEO of FedEx after market close on Thursday (Source – CNN) regarding his sense there is an impending global recession also pushed prices lower. For me, the FedEx announcement was the more important event.

He said FedEx is seeing a decline in the volume of freight it is handling in every region around the world. While he said U.S. consumers are somewhat protected by the strength of the dollar, which is increasing their purchasing power, but he said FedEx is seeing a slowdown in Americans’ spending as well.

The company said it is responding by reducing flights and temporarily parking aircraft, trimming hours for its staff, delaying some hiring plans and closing 90 FedEx Office locations as well as five corporate offices. It is also cutting $500 million from its capital expenditure budget for its fiscal year, which runs through May of 2023, trimming that spending to $6.3 billion.

FedEx has its finger on the pulse of the global economy. The patient is not doing well.

SPX fell 4.77% on the week; my weekly model has SPX remaining in a downtrend. Here is the daily SPX chart. I like the daily because it shows the big sell-off on Tuesday. Friday saw a small bounce, but only after first making a new 8-week low; perhaps, the market digested what Mr. FedEx had to say, and interpreted it (optimistically) as “maybe all the bad news means we’ll get a Fed Pivot!”. Or, maybe on Friday the shorts were ringing the cash register a little bit. It’s hard to say.  Friday’s candle print (a “short black/spinning top”) was not particularly bullish. Sector map was bearish: the decline was led by materials (-7.09%) and industrials (-6.82%), while sickcare (-2.39%) and energy (-2.75%) did best. This week’s new 8-week low was definitely a bearish signal for equities. (A brief tactical point; in downtrends, the pros “short rallies”, they don’t go short “at the lows”).