S&P 500 Analysis: Santa Rally Coming to Town?

The clue-chip index added close to 1.5%, likewise the other Wall Street indices in a session that got bulls talking about a Santa Rally.

What Is a ‘Santa Rally’?

Market commentators tend to use the ‘Santa Rally’ term quite broadly to refer to either the entire month of December or a relatively longer time period.

But this term actually refers to the last week of December and the first two trading days of the new year. That is when markets increase in value.

Research shows that this single 7-day period has produced a positive return for the S&P 500 79% of the time. No other similar time period is more likely to be higher.

Of course, seasonality and calendar theories are not a guaranteed way to make profits as it is tough to predict what will impact markets in any given year.

But the January effect when institutional investors ready themselves for the new year to set up positions for the coming weeks can be a positive phenomenon.

These types of investors may also rebalance portfolios for tax-loss selling in December to close out losses, followed by repurchasing in January.

Why Are Stocks Climbing This Week?

The risk mood rebounded as US headline consumer confidence improved to the highest level since April while better-than-expected earnings from Nike and FedEx also helped boost sentiment.

That said, markets ignored more depressing housing data.

Existing home sales fell for a tenth straight month as the historic surge in US mortgage rate this year continue to pressure the US housing market. This theme may play out across the new year and slowly impact other parts of the economy.

With such macro data in mind, the S&P 500 has bounced off a Fib level (23.6%) of the market’s year-to-date declines.

The index is now toying with the 50-day simple moving average at 3893.4 as the immediate resistance level, with the 100-day simple moving average above at 3917.6.

For more information visit FXTM.

BTC Fear & Greed Index Signals a Bullish Session Despite FTX Jitters

Key Insights:

  • On Wednesday, bitcoin (BTC) slipped by 0.47% to end the day at $16,845.
  • Profit-taking from the bullish Tuesday session left BTC in the red as investors consider the SBF extradition to the US.
  • The Fear & Greed Index rose from 26/100 to 28/100 despite BTC failing to revisit $17,000.

On Wednesday, bitcoin (BTC) slipped by 0.47%. Partially reversing a 2.90% rally from Tuesday, BTC ended the day at $16,845. Notably, BTC failed to revisit $17,000 for the fourth time in five sessions.

A mixed start to the day saw BTC rise to an early morning low of $16,934. However, coming up short of the First Major Resistance Level (R1) at $17,189, BTC fell to an early afternoon low of $16,750. Steering clear of the First Major Support Level (S1) at $16,536, BTC found late support to reduce the deficit for the session.

FTX and Sam Bankman-Fried Swamp the Headlines to Test Sentiment

Following the bullish Tuesday session, investors were more cautious on Wednesday. News of the SBF extradition to the US raised concerns, with US lawmakers likely to delve deeper into the digital asset space. We also expect lawmakers to explore the relationship between FTX and Binance.

Last week, news of US authorities planning to charge Binance with financial crimes weighed on investor sentiment. The Senate Banking Committee also held a hearing last week to discuss the demise of FTX. Lawmakers raised concerns over the dominance that Binance has in the digital asset space.

SBF testimony could place Binance back in the spotlight and increase lawmaker scrutiny.

The BTC decoupling from the NASDAQ Index reflected the shift in focus away from US economic indicators and corporate earnings. The NASDAQ Index rose by 1.54% on Wednesday, supported by better-than-expected consumer confidence figures and upbeat corporate earnings. Nike (NKE) and FedEx (FDX) quarterly earnings delivered support.

Today, FTX updates will remain a focal point, with US economic indicators likely to draw interest. Barring a revision to Q3 GDP numbers, the weekly jobless claims could move the dial. The NASDAQ mini was up 32.75 points this morning, providing early support.

NASDAQ correlation.
NASDAQ – BTCUSD 221222 5 Minute Chart

The Fear & Greed Index Rises to 28/100 to Signal a Bullish Thursday

Today, the BTC Fear & Greed Index rose from 26/100 to 28/100, despite BTC failing to revisit $17,000.

Market focus on FTX and the SBF extradition left BTC on the back foot. However, US economic indicators and corporate earnings provided hopes of a soft landing, supporting investor sentiment.

Over the near term, SBF testimony will likely remain a market focal point. However, regulatory chatter and US economic indicators will continue to provide direction.

Avoiding sub-20/100 remains the key near-term. The bulls will need to target the pre-FTX collapse November 6 high of 40/100 to support a BTC run at $20,000.

Fear & Greed Index signals a bullish session.
Fear & Greed 221222

Bitcoin (BTC) Price Action

At the time of writing, BTC was up 0.04% to $16,852. A range-bound start to the day saw BTC fall to an early low of $16,831 before rising to a high of $16,868.

BTC holds steady.
BTCUSD 221222 Daily Chart

Technical Indicators

BTC needs to avoid the $16,843 pivot to target the First Major Resistance Level (R1) at $16,936. A return to $16,900 would signal a bullish session. However, the NASDAQ Index and crypto news wires need to be crypto-friendly.

In the event of an extended rally, BTC would test the Second Major Resistance Level (R2) at $17,027 before any pullback. The Third Major Resistance Level (R3) sits at $17,211.

A fall through the pivot would bring the First Major Support Level (S1) at $16,752 into play. Barring a risk-off-fueled sell-off, BTC should avoid sub-$16,500. The Second Major Support Level (S2) at $16,659 should limit the downside. The Third Major Support Level (S3) sits at $16,475.

An adverse crypto market event would bring sub-$16,000 into play.

BTC resistance levels in play above the pivot.
BTCUSD 221222 Hourly Chart

Looking at the EMAs and the 4-hourly candlestick chart (below), it was a bearish signal. This morning, BTC sat below the 50-day EMA, currently at $16,933. After Sunday’s bearish cross, the 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A move through the 50-day ($16,933) and R1 ($16,936) would support a breakout from the 100-day ($16,998) to target R2 ($17,027). However, failure to move through the 50-day EMA ($16,933) would leave BTC under pressure.

EMAs are bearish.
BTCUSD 221222 4 Hourly Chart

Crypto Market Daily Highlights – FTX Focus Weighs on Sentiment

Key Insights:

  • It was a bearish Wednesday session for the crypto top ten. BNB and ADA led the top ten into negative territory.
  • While fears of a Binance liquidity crunch eased, FTX and Sam Bankman-Fried’s extradition to the US made investors nervous, leading to decoupling from the NASDAQ Index.
  • The crypto market cap fell by $4.68 billion to end the day at $769.24 billion.

It was a bearish Wednesday session for the crypto top ten. BNB and ADA led the way down. Notably, BTC failed to revisit $17,000 for the fourth time in five sessions.

US economic indicators and corporate earnings took a back seat on Wednesday. Investor focus returned to FTX and former CEO Sam Bankman-Fried. The extradition to the US brings uncertainty, with SBF likely to disclose information that could spook investors and increase US lawmaker scrutiny.

One area of government interest will likely be the relationship between FTX and Binance and whether Binance was responsible for the collapse of FTX.

SBF may also provide a list of other platforms at risk of collapse from the fallout, which would place further pressure on the crypto market.

The bearish Wednesday session came despite the NASDAQ Index gaining 1.54% on better-than-expected US consumer confidence numbers and upbeat Nike (NKE) and FedEx (FDX) quarterly earnings.

Today, FTX updates will remain a focal point, with US economic indicators likely to draw interest. Barring a revision to Q3 GDP numbers, the weekly jobless claims could move the dial. This morning, the NASDAQ mini was up 9.75 points, providing early support.

NASDAQ correlation
Total Market Cap – NASDAQ – 221222 5 Minute Chart

Crypto Market Inch Higher as Market Focus Returns to FTX

A mixed start to the day saw the crypto market cap rise to an early morning high of $776.37 billion. However, a bearish morning saw the crypto market cap fall to a mid-morning low of $763.50 billion before steadying.

A range-bound afternoon session left the crypto market cap down by $4.68 billion to $769.24 billion for the day.

Crypto market cap dips.
Total Market Cap 221222 Daily Chart

The Crypto Market Movers and Shakers from the Top Ten and Beyond

It was a bearish Wednesday session for the crypto top ten.

ADA (-2.32%) and BNB (-2.11%) fell by 2.32% and 2.11%, respectively, to lead the way down, with DOGE (-1.47%), MATIC (-1.02%), and XRP (-1.12%) struggling.

However, BTC (-0.47%) and ETH (-0.25%) saw modest losses.

From the CoinMarketCap top 100, it was a mixed session.

Helium (HNT) led the way, rallying by 32.29%. Toncoin (TON) and ethereum classic (ETC) were also among the front-runners, rising by 6.79% and 4.40%, respectively.

However, chain (XCN) led the way down, sliding by 18.33%, with trust wallet token (TWT) and lido DAO (LDO) seeing losses of 6.21% and 5.18%, respectively.

24-Hour Liquidations Slide as Investor Caution Sinks Trading Volumes

Over 24 hours, crypto liquidations tumbled as investor caution over FTX led trading volumes lower.

At the time of writing, 24-hour liquidations stood at $14.77 million versus $40.76 million on Wednesday morning.

Liquidated traders over the last 24 hours also decreased. At the time of writing, liquidated traders stood at 8,388 versus 10,661 on Wednesday morning. Crypto liquidations decreased over 12 hours while rising over four hours and one hour.

Crypto liquidations slide.
Total Crypto Liquidations 221222

According to Coinglass, 12-hour liquidations fell from $16.77 million to $6.88 million. However, four-hour liquidations rose from $1.09 million to $2.45 million, with one-hour liquidations up from $0.399 million to $0.471 million.

The chart below shows market conditions throughout the session.

Crypto market range-bound late in the session.
Total Market Cap 221222 Hourly Chart

Apple Inc. Joins Growing List Responding to Economic Conditions

Overnight, US tech giant and multinational Apple Inc. (AAPL) announced that it would drop plans to increase the production of its new iPhone 14 product suite.

Bloomberg reported that an expected surge in demand failed to materialize, forcing the company to notify suppliers to curtail efforts to increase assembly line output. Apple planned to increase production of the new iPhone 14 product suite by as much as 6 million units in the second half of this year.

Today’s news followed reports of Apple Inc. shifting some iPhone 14 production from China to India. According to Reuters, the shift from China was in response to rising geopolitical tensions and COVID-19 lockdown measures in China that continue to impact output.

The market reaction to the news was bearish. Ahead of the Bloomberg report, the NASDAQ 100 Mini was in positive territory. However, at the time of writing, the NASDAQ 100 Mini was down 142.25 points, with the Dow Jones Mini down 190 points. For the S&P 500, another bearish session would extend the losing streak to seven sessions.

Pre-market, Apple Inc was down 3.70%.

The European markets also responded adversely to the news. Early in the European session, the DAX30 was down 1.60%, with the CAC40 and the EuroStoxx600 down 1.24% and 1.43%, respectively.

Beyond the global equity markets, the crypto market reacted negatively to the news. This morning the crypto market cap was down $17 billion to $878.4 billion. Before the Apple news hit the wires, the crypto market cap had struck an early high of $902.2 billion.

Crypto market reacts to Apple Inc news.
Crypto Market Cap 280922 Daily Chart

Apple Joins Growing List of Multinationals to Sound the Alarm Bells

This morning’s news was one of several as US multinational companies respond to a marked shift in the economic environment. Economic indicators continue to flash red as central banks attempt to tame inflation.

Rising interest rates and persistent inflation amidst a weakening economic outlook have weighed on demand expectations.

In July, Walmart (WMT) spooked the global financial markets with a grim outlook for the quarter and the fullyear. However, shortly after the WMT warning, Apple Inc. and Amazon.com (AMZN) released earnings results and delivered positive outlooks, which were in stark contrast to that of Walmart.

Conditions have deteriorated rapidly since July, with Gap Inc. (GPS) pulling its full-year outlook in August, citing macroeconomic uncertainty as the company searched for a new CEO.

Earlier this month, FedEx (FDX) withdrew its earnings forecasts, citing deteriorating market conditions. FedEx shares tumbled by 21.44% in response to the announcement.

As the list grows longer, market angst will likely build as investors prepare for the earnings season, which kicks off next month.

DOGE and SHIB in for a Choppy Afternoon as Fed Tension Intensifies

Key Insights:

  • Dogecoin (DOGE) and Shiba Inu Coin (SHIB) joined the broader market in a bullish Monday session.
  • However, the gains were modest, with Fed and recession fears limiting the upside.
  • The technical indicators are bearish, suggesting price pressure will linger ahead of the Fed policy decision.

On Monday, Dogecoin (DOGE) rose by 1.92%. Partially reversing a 7.65% slide from Sunday, DOGE ended the day at $0.05855.

A bearish start to the day saw DOGE slide to a mid-morning low of $0.05588. Avoiding the First Major Support Level (S1) at $0.0551, DOGE rallied to a late high of $0.05884. However, coming up short of the First Major Resistance Level (R1) at $0.0610, DOGE slipped back to end the day at $0.05855.

Shiba Inu Coin (SHIB) rose by 3.48% on Monday. Partially reversing an 11.06% meltdown from Sunday, SHIB ended the day at $0.00001099.

A choppy start to the day saw SHIB fall to an early morning low of $0.00001051. Steering clear of the First Major Support Level (S1) at $0.0000097, SHIB struck a late high of $0.00001111 before easing back. Despite the bullish second half, SHIB came up short of the First Major Resistance Level (R1) at $0.0000117.

It was another quiet day on the crypto news wires, leaving DOGE and SHIB in the hands of investor sentiment towards the Fed and the economic outlook. Following World Bank and FedEx (FDX) warnings from the previous week, Sunday’s bearish sentiment spilled over to the Monday session.

However, easing bets of a percentage point Fed rate hike and a NASDAQ move into positive territory provide support. On Monday, the NASDAQ 100 rose by 0.76%, with the probability of a percentage point rate hike falling from 21% on Sunday to 19%.

Barring a crypto news event, we expect the NASDAQ and sentiment towards the Fed to continue influencing before tomorrow’s policy decision. This morning, the NASDAQ 100 Mini was down 16 points, with the probability of a percentage point rate hike increasing from 19% to 20% A larger increase would test the support for riskier assets.

Shiba Inu Coin (SHIB) Price Action

At the time of writing, SHIB was down 0.82% to $0.00001090.

A mixed morning saw SHIB fall from an early high of $0.00001104 to a mid-morning low of $0.00001083. Steering clear of the Major Support Levels, SHIB revisited the high of $0.00001104 before easing back.

SHIB in the red.
SHIBUSD 200922 Daily Chart

Technical Indicators

SHIB needs to hold above the $0.00001090 pivot to target the First Major Resistance Level (R1) at $0.0000112.

SHIB would need a pickup in market risk appetite to support a breakout from the morning high of $0.00001104. We expect the NASDAQ 100 Mini and the US markets to influence throughout the US session, with investors focused on the Fed.

In the case of a broad-based crypto rally, SHIB should test the Second Major Resistance Level (R2) at $0.0000112. The Third Major Resistance Level (R3) sits at $0.0000121.

A fall through the pivot would bring the First Major Support Level (S1) at $0.0000106 into play. Barring another extended sell-off, SHIB should avoid sub-$0.0000100. The Second Major Support Level (S2) at $0.0000103 would likely limit the downside.

The Third Major Support Level (S3) sits at $0.0000097.

SHIB resistance levels in play above the pivot.
SHIBUSD 200922 Hourly Chart

The EMAs send a bearish signal, with SHIB sitting below the 50-day EMA, currently at $0.00001167. This morning, the 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA. Both signals were price negatives.

A move through R1 ($0.0000112) would bring R2 ($0.0000115) and the 50-day EMA ($0.00001167) into view. However, failure to move through the 50-day EMA would give the bears a run at S1 ($0.0000106).

EMAs bearish.
SHIBUSD 200922 4 Hourly Chart

Dogecoin (DOGE) Price Action

At the time of writing, DOGE was down 0.13% to $0.05847. A mixed start to the day saw DOGE fall to an early low of $0.05793 before rising to a high of $0.05908.

DOGE under early pressure.
DOGEUSD 200922 Daily Chart

Technical Indicators

DOGE needs to avoid the $0.0578 pivot to target the First Major Resistance Level (R1) at $0.0596.

Bullish sentiment across the crypto market would support a breakout from the Morning high of $0.05908. In an extended crypto rally, DOGE should test the Second Major Resistance Level (R2) at $0.0607. The Third Major Resistance Level (R3) sits at $0.0637.

A fall through the pivot would bring the First Major Support Level (S1) at $0.0567 into play. Barring another extended sell-off, DOGE should avoid sub-$0.0550 and the Second Major Support Level (S2) at $0.0548. The Third Major Support Level (S3) sits at $0.0518.

DOGE resistance levels in play above the pivot.
DOGEUSD 200922 Hourly Chart

The EMAs sent a bearish signal, with DOGE sitting below the 50-day EMA, currently at $0.06013. Today, the 50-day EMA slipped back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

DOGE needs to move through R1 ($0.0596) to target R2 ($0.0607) and the 100-day EMA ($0.06138). The 200-day EMA sits at $0.06344. However, failure to move through the 50-day EMA would leave S1 ($0.0567) in play.

EMAs bearish.
DOGEUSD 200922 4 Hourly Chart

5 Things to Know in Crypto Today: Fed & Recession Fears Grip

Key Insights:

  • Ethereum (ETH) and bitcoin (BTC) sink on renewed Fed and recessionary fears.
  • Regulators continued to turn the screw, with FTX in the spotlight.
  • Helium (HNT) bucked a bearish market trend on news of a Binance accounting error.

Fed and Recession Fears Jolt the Crypto Market

This morning, the total crypto market cap tumbled by $27.8 billion to $867.6 billion. Fed and recession fear sent the crypto market tumbling on Sunday, and bearish sentiment has continued through this morning’s session.

Cryptos turn bearish.
Crypto Market Cap 190922 Daily Chart

Last Tuesday’s US CPI report caught the markets off guard, and while economic indicators raise red flags, central banks remain committed to front-loading rate hikes to bring inflation to target.

According to the CME FedWatch Tool, the probability of a percentage point rate hike on November 2 sits at 13.3%, up from 0.0% a week ago. While the chances of a 75-basis point rate hike held steady, the probability of a 50-basis point rate fell from 30.7% to 27.0% over the last seven days.

Fed rate outlook hawkish.
CME Probability Fed 190922

While the numbers in isolation may be of little concern, fears of a global economic recession and a hawkish Fed are negative for cryptos.

On Thursday, the World Bank issued a press release titled ‘Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes.’

The World Bank highlighted the risks of a ‘string of financial crisis in emerging market and developing economies that would do them lasting harm.’

The report preceded a FedEx (FDX) warning of deteriorating economic conditions on Friday. FedEx was not the first to raise concerns. In July, Walmart (WMT) hit the crypto market with a warning of its own.

Helium (HNT) Leads a Choppy Market

This morning, HNT surged by 17.5% to $4.67.

The bounce back from sub-$4.00 came on news of a Binance accounting error leading to the mass selling of erroneously allocated HNT tokens. The Binance error was an accounting error, classifying HNT and the network’s second token, Mobile, as one token.

Binance credited users who deposited Mobile tokens with the higher valued HNT tokens. Holders quickly sold the HNT tokens, leading to the price slide.

HNT in recovery mode.
HNTUSD 190922 Daily Chart

South Korean Authorities Request Interpol Red Letter to Nab Do Kwon

Last week, South Korean authorities issued an arrest warrant for Terra Labs founder Do Kwon. Since then, the situation has become direr. The hunt for Do Kwon has intensified, culminating in authorities calling on Interpol to issue a red letter.

Over the weekend, the Singapore government stated that Do Kwon was not living in Singapore. Even Do Kwon stated that he was not on the run, saying,

“I’m not “on the run” or anything similar – for any government agency that has shown interest to communicate, we are in full cooperation and we don’t have anything to hide.”

However, investors showed little concern. At the time of writing, LUNA was up 12.2% to $0.000309.

LUNA on the move despite Do Kwon woes.
LUNAUSD 190922 Daily Chart

The Financial Conduct Authority Raises FTX Red Flag

FTX has had plenty of news coverage in recent days. Over the weekend, FTX CEO talked of a $1 billion crypto chest to acquire or aid ailing crypt-related firms.

However, the news has not all been FTX-positive. Last week, the FTC warned that FTX is an unauthorized FTC entity. In the announcement, the FTC stated,

“The firm is not authorized by us and is targeting people in the UK. You will not have access to the Financial Ombudsman Service or be protected by the Financial Services Compensation Scheme (FSCS), so you are unlikely to get your money back if things go wrong.”

The Ripple Team Share Their Views on the SEC

Following the weekend filings, Ripple CEO Brad Garlinghouse stated,

“Today’s filings make it clear the SEC isn’t interested in applying the law. They want to remake it all in an impermissible effort to expand their jurisdiction far beyond the authority granted to them by Congress.”

Ripple Defense counsel Stuart Alderoty said,

“My hot take – after two years of litigation, the SEC is unable to identify any contract for investment (that’s what the statute requires); and cannot satisfy a single prong of the Supreme Court’s Howey test. Everything else is just noise.”

Fed and recession fears overshadowed investor optimism for a favorable outcome to the SEC v Ripple case on Sunday and this morning. On Sunday, XRP came within reach of $0.40 before succumbing to market forces.

XRP on the back foot.
XRPUSD 190922 Daily Chart

 

S&P 500 (SPY) Dives To 3850 As FedEx Report Highlights Recession Risks

Key Insights

  • The disappointing report from FedEx put significant pressure on S&P 500 today. 
  • Treasury yields keep moving higher, which is bearish for stocks. 
  • A move below 3850 will push S&P 500 towards the next support level at 3825.

S&P 500 Remains Under Strong Pressure Ahead Of The Weekend

S&P 500 moved towards the 3850 level after a disappointing FedEx fiscal Q1 report. The report missed analyst estimates. In addition, FedEx withdrew its fiscal year 2023 earnings forecast, which was provided on June 23, 2022.

FedEx noted that “results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately $500 million relative to company forecasts.”

FedEx stock is down by 22% in today’s trading session. United Parcel Service stock has also found itself under material pressure.

The FedEx report boosted worries about a global recession. Not surprisingly, consumer cyclical stocks have found are losing ground today. Packaging Corporation of America and International Paper Company are down by more than 11%.

Other notable losers include General Electric, which is down by 5%, and Boeing, which is down by 4% in today’s trading.

Meanwhile, Treasury yields keep moving higher as traders remain nervous ahead of the Fed meeting. Higher yields are bearish for tech stocks, which are moving lower. Meta managed to settle below the $150 level and is testing yearly lows near the $146 level. Amazon stock is down by 3% today.

S&P 500 Tests Support At 3950

S&P 500

S&P 500 managed to settle below the support at 3885 and is testing the next support level at 3850. In case this test is successful, S&P 500 will move towards the next support level, which is located at 3825. A move below 3825 will push S&P 500 towards the support at 3800. If S&P 500 declines below this level, it will head towards the next support at 3780.

On the upside, the previous support level at 3885 will serve as the first resistance level for S&P 500. In case S&P 500 manages to settle back above 3885, it will head towards the resistance at 3900. A successful test of the resistance at 3900 will push S&P 500 towards the next resistance level at 3920.

For a look at all of today’s economic events, check out our economic calendar.

Best Industrial Stocks To Buy In May

Key Insights

  • The broad market pullback continues, so traders are focused on finding stocks that are trading at attractive levels. 
  • While the market is worried about rising rates and the potential slowdown of the economy, analyst estimates for some industrial stocks have started to move higher. 
  • Rising analyst estimates could provide more support to the shares of FedEx and Cummins. 

S&P 500 continues to move lower, and traders are searching for value stocks which could protect them from broad market sell-off. While many tech stocks remain rather expensive despite the recent pullback, some industrial stocks are valued at less that 10 forward P/E.

FedEx

FedEx stock has been moving lower since June 2021, and the stock has reached attractive valuation levels. Analysts expect that the company will report earnings of $20.62 per share in the current year and earnings of $22.62 per share in the next year, so the stock is trading at 9 forward P/E.

It should be noted that analyst estimates have started to move higher in recent weeks, which could provide more support to FedEx stock. The current attractive valuation may serve as the main positive catalyst for FedEx shares as traders are moving away from high-PE names in the rising interest rate environment.

Cummins

Cummins stock has been trending lower since February as worries about the health of the global economy have put pressure on earnings estimates for one of the leading engine producers.

However, earnings estimates have recently started to move higher. Currently, the company is expected to report earnings of $17.65 per share this year and earnings of $20.21 per share in the next year, so the stock is trading at less than 10 forward P/E, which is cheap for the current market environment.

Cummins has recently released its first-quarter report, easily beating analyst estimates on both earnings and revenue. The stock quickly found itself under pressure due to general market weakness, but attractive valuation and recent improvement in analyst estimates may provide enough support to Cummins shares near current levels.

For a look at all of today’s economic events, check out our economic calendar.

UPS Profit Margins Under Pressure

United Parcel Service Inc. (UPS) reports Q1 2022 results in Tuesday’s pre-market session, with analysts looking for a profit of $2.88 per-share on $23.8 billion in revenue. If met, earnings-per-share (EPS) will mark a modest improvement compared to the $2.77 booked in the same quarter last year. Rival FedEx Corp. (FDX) fell 4.0% in March after missing fiscal Q3 earnings estimates and reaffirming guidance, generating a cautious tone ahead of the news.

Freight and Fuel Pressuring Margins

The stock fell ten sessions in a row at the start of April, signaling a major shareholder exodus, ahead of this week’s closely-watched confessional. A Bank of America downgrade after the seventh day added insult to injury, dumping price to the lowest low since October. Slumping freight prices explain most of the downside, with additional capacity putting pressure on profit margins, further aggravated by fuel costs hitting their highest highs in more than a decade.

BofA Securities analyst Ken Hoexter downgraded UPS to ‘Hold’ from ‘Buy’ on Apr. 15, lowering the firm’s price target to $204. JPMorgan analyst Brian Ossenbeck followed suit, cutting the price target to $229 while citing “the fragile balance of capacity additions in an overheated freight market.”  It’s instructive to note that freight rates across the board have dropped since those downgrades but it’s too early to declare a change in trend.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated in the last three months, dropping to an ‘Overweight’ rating based upon 14 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $150 to a Street-high $275 while the stock is set to open Monday’s session more than $55 below the median $245 target. This low placement suggests firms are doing a bad job informing clients about systemic risks in the transportation sector.

United Parcel Service broke out above the 2018 peak at 135.53 in August 2020, entering a powerful uptrend that stalled near 220 in May 2021. November and February breakout attempts failed, yielding a selling wave that dropped the stock within six points of October range support at 181. It’s been grinding sideways at that level for the last two weeks while accumulation has dropped to a six-month low. Bull and bear odds are equally weighted after the news but a long-term sell cycle could yield lower prices through most of the quarter.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why FedEx Stock Is Down By 5% Today

Key Insights

  • FedEx earnings miss analyst estimates.
  • The company faces pressure from rising transportation and wage costs.
  • The stock will need additional positive catalysts to break the current downside trend.

FedEx Stock Falls After Earnings Report Misses Analyst Estimates

Shares of FedEx gained downside momentum after the company released its fiscal third-quarter report. FedEx reported revenue of $23.6 billion and adjusted earnings of $4.59 per share, beating analyst estimates on revenue and missing them on earnings.

Higher transportation and wage costs have put some pressure on the company’s profits. At the same time, FedEx noted that “the quarter’s results also benefited from lower variable compensation expense and less severe winter weather, resulting in favorable year-over-year comparisons”.

For the full fiscal year, FedEx expects to report earnings of $20.50 – $21.50 per share. The company’s capital spending guidance was lowered from $7.2 billion to $7.0 billion.

What’s Next For FedEx Stock?

The market is focused on the increasing cost pressures and their potential impact on the company’s earnings in the upcoming quarters. Currently, analysts expect that FedEx will report earnings of $20.62 per share in the current fiscal year, so the company’s guidance is above the analyst consensus. In the next fiscal year, FedEx earnings are expected to increase to $22.74 per share.

It should be noted that analyst estimates have been moving lower in recent weeks, and it remains to be seen whether the company’s new guidance will change this trend.

Transportation costs are set to increase due to the recent developments in commodity markets, and it looks that a $100 oil may become the “new normal” for the upcoming months. In this environment, FedEx profits may find themselves under pressure, which will be bearish for the company’s stock.

At current levels, FedEx stock is trading at less than 10 forward P/E, which looks cheap. However, the stock will need positive catalysts that could offset concerns about rising costs.

For a look at all of today’s economic events, check out our economic calendar.

Best Stocks, Crypto, and ETFs to Watch – Apple, Tesla, Dogecoin, Fedex in Focus

March triple witching and the Fed decision ensure high volatility and sudden reversals this week, telling traders to buckle up and take defensive measures. Fedex Corp. (FDX) heads a light earnings calendar, with Thursday’s release looking for a profit of $4.65 per share on $23.32 billion in earnings. The shipping giant failed a breakout in August, entering a steep decline that stretched to a 36% haircut last week. Worries about crashing volumes don’t appear far-fetched, given soaring commodities and the collapse of international markets.

Stocks

Dow component Apple Inc. (AAPL) has held up better than rivals in recent weeks, with long-time bulls unwilling to part with their precious shares. However, one immutable characteristic of bear markets could generate lots of pain down the road, regardless of the love affair with all things iOS. Specially, market generals are the last to fall in the first stages of bear markets, often causing enormous psychological damage that increases broad-based selling pressure.

Tesla Inc. (TSLA) failed a breakout above the 2021 high at 900.40 in February 2022, dropping to a 6-month low at 700. It bounced into March, stalling at new resistance and the 200-day moving average. Friday’s selloff could signal the end of that recovery effort, ahead of a dangerous test at the February low. That trading floor also marks the .786 Fibonacci retracement of the May into November uptrend, marking the last line of defense for battered bulls.

Crypto

Dogecoin (DOGE) soared in April 2021, lifting from $0.17949 to $0.6999 in just three weeks. The bubble then burst, relinquishing 100% of the rally wave into late June. Sadly for bulls, the crypto broke 7-month support in December, yielding mixed action into January, followed by a steady drip decline that’s now reached within a few clicks of February’s all-time low. Worse yet, volatility has evaporated from this market, allowing gravity to maintain control despite deeply oversold technical readings.

ETFs

iShares MSCI Emerging Markets Index Fund ETF (EEM) rallied above 12-year resistance at 50 in January 2021 and mounted the historic 2007 peak at 55.83 one month later. The fund then turned tail, failing both breakouts in a persistent decline that accelerated when Russia invaded Ukraine. This historic failure could signal long-lasting bear markets in Russia, China, and India, with plenty of potential downside into the 2020 low near 30.00.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Wall Street Week Ahead: Lennar, FedEx, Dollar General, GameStop and Fed’s Policy in Focus

The Ukraine-Russia crisis continued to dominate market movements, causing extreme volatility in the financial market and pushing the oil prices to a decade high and depressing stocks.

The U.S. Federal Reserve is widely expected to hike by 25 basis points to 0.25%-0.5% on Wednesday. Still, analysts will closely monitor inflation and the economic growth outlook and how the central bank projects future rate increases. The fear of a vicious cycle of low growth and higher inflation could deter the Fed from raising rates faster than expected previously.

Last week, the S&P 500 dropped 2.9%. Stocks in the energy sector were the top performers, up nearly 1.9%. Energy stocks have rallied on concerns about tightening supplies that have driven up oil and gas prices. The rally would likely continue this week.

In addition, investors will focus on December quarter earnings for economically sensitive stocks, which should show better profits than technology stocks amid surging inflation.

Earnings By Day

Earnings Calendar For The Week Of March 14

Monday (March 14)

TICKER COMPANY EPS FORECAST
CVGW Calavo Growers $-0.01
CORR CorEnergy Infrastructure Trust $0.37
MTN Vail Resorts $5.73

 

Tuesday (March 15)

TICKER COMPANY EPS FORECAST
CAL Caleres $0.46
CHMI Cherry Hill Mortgage Investment $0.28
IHS IHS Holding $0.04
KNDI Kandi Technologies Group $-0.07

 

Wednesday (March 16)

IN THE SPOTLIGHT: LENNAR

The home construction and real estate company Lennar is expected to report earnings per share of $2.80 in the fiscal first quarter, which represents year-over-year growth of over 37% from $2.04 per share seen in the same period a year ago.

The Miami, Florida-based company would post year-over-year revenue growth of more than 16% to around $6.2 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

“2020-2021 proved to be strong years for the U.S. housing market despite the COVID-19 pandemic. We believe favourable demographics will support steady residential construction activity this decade, with annual housing starts averaging 1.6 million units. We expect first-time buyers will be a key driver of future housing demand, and Lennar is well-positioned to capture these potential buyers with its increased mix of entry-level homes,” noted Brian Bernard, Sector Director at Morningstar.

Lennar controls an ample land supply, which affords the company the ability to meet future demand while focusing on improving cash flows and maintaining a strong balance sheet. The company has shifted to a lighter land acquisition strategy, which seeks to reduce the amount of capital tied up in land by purchasing smaller land parcels and relying more on land options to acquire land on a just-in-time basis. We think this strategy should help the company realize better returns on invested capital and cash flows over the business cycle.”

A list of other earnings reports mentionable

TICKER COMPANY EPS FORECAST
GES Guess? $1.16
JBL Jabil $1.24
LE Lands’ End $0.33
SMTC Semtech $0.49

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 16

Thursday (March 17)

IN THE SPOTLIGHT: FEDEX, GAMESTOP, DOLLAR GENERAL

FEDEX: The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal third-quarter earnings of $4.47 per share, which represents year-over-year growth of over 28% from $3.47 per share seen in the same period a year ago.

The delivery firm would post revenue growth of over 9% to $23.58 billion. It is worth noting that the company has beaten earnings estimates only twice in the last four quarters.

“We are estimating adjusted EPS of $4.76, above the $4.69 consensus. FedEx (FDX) beat on the top and bottom lines last quarter as demand held in while costs remained manageable. We expect most strategic questions to be deferred to the June 28 /29 investor day,” noted Helane Becker, equity analyst at Cowen.

GAMESTOP: The world’s largest multichannel video game retailer GameStop is expected to report its fourth-quarter earnings of $1.06 per share, an improvement from a loss of -$1.39 per share seen in the third quarter. The Grapevine, Texas-based company is forecast to post year-over-year revenue growth of about 4% to around $2.2 billion.

DOLLAR GENERAL: The discount retailer is expected to report earnings per share of $2.59 in the fourth quarter of 2021, which represents a year-over-year decline of over 1.1% from $2.62 per share seen in the same period a year ago.

The Goodlettsville Tennessee-based company is expected to post a net income of $8.69 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

Dollar General (DG) is a best-in-class operator offering a rare combination of 1) consistent, high-quality top-and bottom-line results; 2) visible store growth; and 3) a shareholder-friendly capital allocation policy. The ’22 investment setup is less favourable given decelerating momentum from recent initiatives, a tougher macro backdrop, and ramping expense pressures (particularly on labour). Street estimates look full/fair with less upside potential in our view,” noted Simeon Gutman, equity analyst at Morgan Stanley.

Dollar General’s (DG) valuation (~20x P/E multiple) is in-line with the market and screens relatively fair vs both relative and absolute history. Emerging initiatives (Popshelf, healthcare, produce) are longer-term drivers but likely won’t move the needle in ’22.”

A list of other earnings reports mentionable

TICKER COMPANY EPS FORECAST
ACN Accenture $2.36
DG Dollar General $2.59

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 17

Friday (March 18)

No major earnings are scheduled for release.

FedEx Is Well Worth Watching Ahead of Q3 Earnings

The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal third-quarter earnings of $4.47 per share, which represents year-over-year growth of over 28% from $3.47 per share seen in the same period a year ago.

The delivery firm would post revenue growth of over 9% to $23.58 billion. It is worth noting that the company has beaten earnings estimates only twice in the last four quarters.

“We are estimating adjusted EPS of $4.76, above the $4.69 consensus. FedEx (FDX) beat on the top and bottom lines last quarter as demand held in while costs remained manageable. We expect most strategic questions to be deferred to the June 28 /29 investor day,” noted Helane Becker, equity analyst at Cowen.

At the time of writing, FedEx stock traded 2.51% lower at $213.77 on Friday. The stock tumbled more than 17% so far this year after falling 0.4% in 2021.

Analyst Comments

“We expect a miss for F3Q22 as ongoing pandemic tailwinds are offset by headwinds from Omicron, weather and labour challenges. The sentiment is cautious and the stock has underperformed but the risk to numbers (esp. FY23/24) remains high and we will not have answers until the June analyst day,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth slightly down in FY22 as volume pandemic related tailwinds begin to fade and the company grapples with very difficult comps. We continue to see secular threats to Parcel and remain skeptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14-15x PE) on current EPS.”

FedEx Stock Price Forecast

Sixteen analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $309.63 with a high forecast of $345.00 and a low forecast of $260.00.

The average price target represents a 44.49% change from the last price of $214.29. Of those 16 analysts, 14 rated “Buy”, two rated “Hold”, while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $260 with a high of $375 under a bull scenario and $125 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the delivery firm’s stock.

Several analysts have also updated their stock outlook. JP Morgan cut the price objective to $297 from $312. BofA lowered the price target to $297 from $310. Bernstein raised the target price to $353 from $339. Cowen lifted the price target to $310 from $283.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator shows a selling opportunity.

Check out FX Empire’s earnings calendar

Better Days Ahead for Fedex?

Fedex Corp. (FDX) reports fiscal Q2 2022 earnings after Thursday’s closing bell, with analysts looking for a profit of $4.29 per-share on $22.42 billion in revenue. If met, earnings-per-share (EPS) will mark a 12% profit decline compared to the same quarter in 2020. The stock plunged 9.1% in September after missing Q1 estimates by a wide margin and lowering 2022 guidance. It fell another 6% to a 14-month low in October and bounced, filling the post-earnings gap in November.

2022 Labor Market Advantage

The company blamed a “constrained labor market” for the Q1 shortfall, generating a wave of analyst downgrades. Sentiment has not improved since that time, with wage pressures growing throughout the United States and around the world. Concerns about a weak holiday season and  Omicron-induced slowdown are adding to these headwinds, encouraging investors to sit on their hands until the profit landscape becomes more transparent.

Deutsche Bank analyst Amit Mehrotra recommended the stock in a backhanded way at the end of November, noting that rival United Parcel Service Inc. (UPS) faces tough contract talks with the Teamsters union, raising the potential for the first labor stoppage since 1997. He believes Fedex would benefit if that happens, noting “This makes FDX shares more attractive over the next 12-18 months, in our view, given its non-union employee base and a cost structure that better reflects real-time labor inflation.”

Wall Street and Technical Outlook

Wall Street believes that Fedex is undervalued at this time, posting a consensus ‘Strong Buy’ rating based upon 17 ‘Buy’, 4 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $250 to a Street-high $369 while the stock is set to open Thursday’s session nearly $6 below the low target. This dismal placement suggests limited downside after the report but uncertainly is likely to impact price action well into the first quarter of 2022.

Fedex completed a round trip into the 2018 high at 274.66 in October 2020 and broke out, but the uptrend failed after posting an all-time high at 319.90 in May 2021. The stock relinquished more than 30% of its value into October, ahead of a weak bounce that failed to mount 50- or 200-day moving average resistance. This bearish action tells us the downtrend remains in control and likely to keep pressure on the shipping giant in coming months.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Best Stocks, Crypto, and ETFs to Watch -ETH, FDX, FXI and ATVI in Focus

Ethereum (ETH) has outperformed Bitcoin (BTC) by a country mile in the last seven weeks, holding much closer to November rally highs. It’s pulled back just 19% since that time while the crypto king has relinquished nearly 29%. In addition, the decline has found support near the .382 Fibonacci retracement of the rally starting in September while BTC is struggling to hold the .786 retracement. And, unlike its rival, ETH hasn’t failed the breakout above the May high.

We’re headed into December triple witching options expiration, marking the last chance for fund managers to lock in 2021 gains (or losses) before heading out for the holidays. Expect volatility and two-sided action to surge, with growth, inflation, and Omicron competing for traders’ attention. The week could mark a good opportunity to think contrary and look for Peloton Interactive Inc. (PTON) to burn short sellers riding down a 61% six-week slide to a 19-month low.

Fedex Corp. (FDX) rallied above 2018 resistance in the 270s in November 2020 and failed the breakout 10 months later, entering a decline that tested the 200-day moving average successfully in September. It’s now bounced back to resistance at the 50-day moving average, just in time for Thursday’s after-hours report, when the shipping giant is expected to post a profit of $4.82 per-share on $22.4 billion in revenue. Look for the stock to make little progress after the news, with supply disruptions, inflation, and Omicron weighing on the holiday sales outlook.

iShares China Large Cap ETF (FXI) sold off to the .786 Fibonacci retracement level of the 2020 rally in July 2021 and has spent the last six months testing this support level, which has narrowly aligned with the 200-month moving average. This confluence predicts that bulls will ultimately prevail, ahead of a substantial rally wave that persists well into 2022. Relative strength indicators are flashing the same message, deeply oversold and trying to cross into buy signals.

Activision Blizzard Inc. (ATVI) has been crushed in 2021, dropping 37% in reaction to a poorly-handled sexual harassment scandal. CEO Bobbie Kotick faces widespread calls to resign but he continues to act like a Marvel villain, refusing to step down. Coca-Cola Co. (KO) could strip him of his Board membership soon while outraged employees are trying to unionize. All in all, this is perfect set-up for a profitable short squeeze when the CEO finally cleans out his desk.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held Coca-Cola in a family account at the time of publication.

Earnings Week Ahead: Lennar, Adobe, FedEx, Darden Restaurants and Fed’s Policy in Focus

Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment. The main event on the market will be the Fed’s policy announcement on Wednesday. After the central bank’s policy-making arm concludes its two-day meeting, all eyes will be on Jerome Powell, the Fed’s chairman, who will hold a press conference.

Earnings Calendar For The Week Of December 13

Monday (December 13)

Ticker Company EPS Forecast
PHX PHX Minerals $0.07

 

Tuesday (December 14)

Ticker Company EPS Forecast
CLSK CleanSpark $20.71

 

Wednesday (December 15)

IN THE SPOTLIGHT: LENNAR, FEDERAL RESERVE POLICY DECISION

LENNAR: The home construction and real estate company, is expected to report earnings per share of $4.15 in the fiscal fourth quarter, which represents year-over-year growth of over 46% from $2.83 per share seen in the same period a year ago.

The Miami, Florida-based company would post year-over-year revenue growth of more than 25% to around $8.5 billion. For four quarters in a row, the company has exceeded expectations on earnings per share.

In the fourth-quarter fiscal 2021, Lennar expects to build 18000 homes with a gross margin of 28%, according to Zacks research. The number of new orders is expected to range from 15,200 to 15,400 units, while the average selling price is forecast to be $445,000. As a percentage of home sales, SG&A expenses are likely to be 6.7%.

In a note to clients, Goldman Sachs analysts raised her price target for Lennar to $140 from $108 and upgraded it from neutral and buy to buy.

FOMC: On Wednesday, the Fed will likely announce an acceleration of its bond-buying program. Fed’s decision may also be influenced by consumer price inflation data, which hit nearly 40 years high in November.

“The concern at the Fed will be that high inflation today can fuel expectations of higher inflation tomorrow and the day after that and so on. This can then feed through into wage demands and in an environment of decent corporate pricing power we see those costs post onto customers,” noted James Knightley, Chief International Economist at ING.

“The Fed will be keen to avoid this (or be seen willing to tolerate it), hence our expectations for a faster taper next week, with the programme concluding in February. We also expect them to signal the prospect of two rate hikes in their “dot plot”, up from the one they currently have.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 15

Ticker Company EPS Forecast
ABM ABM Industries $0.80
HEI Heico $0.59
LEN Lennar $4.15
TTC Toro $0.53
NDSN Nordson $2.10

 

Thursday (December 16)

IN THE SPOTLIGHT: ADOBE, FEDEX

ADOBE: The U.S. multinational computer software company is expected to report its fiscal fourth-quarter earnings of $3.20 per share, which represents year-over-year growth of about 14% from $2.81 per share seen in the same period a year ago.

The San Jose, California-based software company would post year-over-year revenue growth of over 19% to $4.09 billion. In the last two years, the company has beaten earnings per share (EPS) estimates almost all the time.

“Heading into FY22 we favour core franchises at reasonable valuation levels, like Adobe. We see improving DX growth, more so than DM, to pave the route to sustained ~20% growth. The initial FY22 guide likely proves conservative, but establishes a base from which ADBE can grind higher,” noted Keith Weiss, equity analyst at Morgan Stanley.

FEDEX: The Memphis, Tennessee-based multinational delivery services company is expected to report its fiscal second-quarter earnings of $4.24 per share, which represents a year-over-year decline of over 12% from $4.83 per share seen in the same period a year ago.

The delivery firm would post revenue growth of about 9% to 22.41 billion up from $20.6 billion seen a year ago. In the last four quarters, the company has beaten earnings per share estimates (EPS) only twice.

“After several negative catalysts in the Parcel space, momentum has (modestly) reversed in recent weeks. The question is can FedEx’s (FDX) print continue to build momentum or will we return to our prior pattern of disappointing updates? We believe consensus & guidance are still too optimistic,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect F2Q22 to come in below consensus. We are also below cons. for overall EBIT driven by misses in Ground and Express which are only partially offset by a beat in Freight. All in, we continue to believe the FY22 guidance cut from last quarter was not enough and see risk to F2Q and FY22 numbers as pandemic tailwinds die down.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 16

Ticker Company EPS Forecast
ACN Accenture $2.63
JBL Jabil $1.80
SCS Steelcase $0.09
WOR Worthington Industries $1.72

 

Friday (December 17)

IN THE SPOTLIGHT: DARDEN RESTAURANTS

The Orlando-based restaurant operator, Darden Restaurants, is expected to report its fiscal second-quarter earnings of $1.44 per share, which represents year-over-year growth of about 95%, up from $0.74 per share seen in the same period a year ago.

The multi-brand restaurant operator would post year-over-year revenue growth of nearly 35% to $2.2 2 billion. In the last two years, the company has beaten earnings per share (EPS) estimates all the time.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 17

Ticker Company EPS Forecast
WGO Winnebago Industries $2.36

 

Consumer Price Index: Key Focus This Friday

Consensus is calling for a headline number of +6.8% but estimates range as high as nearly +8%. Investors will be closely scrutinizing underlying details for signs that price gains are starting to look more permanent. This would be most evident in the so-called “core” rate that strips out food and gas prices.

After moderating somewhat this summer, the gauge made a substantial jump in October, indicating prices are climbing for a more broad range of consumer goods that are unlikely to be rolled back.

Inflation

The current wave of inflation is being fueled on several fronts, but primarily economists blame a lack of supply to meet booming consumer demand for goods. Some equate it to the same type of supply-demand mismatch witnessed following World War II when Americans were in the mood to spend but wartime rationing had left many products in short supply.

By 1947, inflation had jumped to over +20%. However, by the end of 1948 it was hovering just over +8%, and less than a year later the economy had flipped into deflation.

Some economists argue the resulting recession of 1948-49 was due to the central bank adopting policies to fight inflation even as it had already begun declining on its own. This is an example from history that more bulls have been citing in their arguments cautioning against the Fed moving too fast as it looks to curb the current bout of rising prices.

What that period did not have was the labor shortage that American businesses face today. Many bulls believe the currently fierce demand for workers is largely driven by pent up consumer demand that will likely begin to fade next year. There are concerns that the issue is a more fundamental shift that proves to be permanent, though, which could keep wage pressures in place longer-term and present a whole different set of problems for the Federal Reserve.

Data to watch

Next week, the central bank is expected to announce plans to accelerate the pace of its asset “taper” which would in turn move up the timeframe for interest rate hikes to begin. What bulls really want to see is assurances from the Fed that they will remain flexible and willing to adjust policy if the economy shows signs of stumbling.

The two day policy meeting concludes on Wednesday, 12/15, and will be followed up by a press conference by Fed Chair Jerome Powell. The central bank will also publish new economic projections which will include inflation forecasts and median range interest rate projections, aka the “dot plot.”

The previous September forecast projected the Fed’s short-term interest rate target at +0.3% for 2022, +1.0% for 2023, and +1.8% for 2024.

Other data set for release next week includes the Producer Price Index on Tuesday; Retail Sales, Empire State Manufacturing, Import/Export Prices, Business Inventories, and the NAHB Housing Market Index on Wednesday; and Housing Starts, the Philadelphia Fed Index, Industrial Production, and IHS Manufacturing on Thursday.

Next week also brings central bank policy updates from Bank of England and the European Central Bank on Thursday.

On the earnings front, next week’s highlights are Adobe, FedEx, and Rivian, all of which release results on Thursday.

Overall, I still think there could be more extreme volatility and downside risk into next week’s Fed meeting so I have a few short hedges in place. I suspect once we get past the Fed meeting and any possible knee-jerk there might be a more clear path for the bulls to run into yearend.

 

FedEx Q2 Earnings To Come In Below Consensus, Says Morgan Stanley

The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal second-quarter earnings of $4.24 per share, which represents a year-over-year decline of over 12% from $4.83 per share seen in the same period a year ago.

The delivery firm would post revenue growth of about 9% to 22.41 billion up from $20.6 billion seen a year ago. In the last four quarters, the company has beaten earnings per share estimates (EPS) only twice.

FedEx stock was trading 2.35% higher at $240.84 on Monday. However, the stock declined by over 7% so far this year.

Analyst Comments

“After several negative catalysts in the Parcel space, momentum has (modestly) reversed in recent weeks. The question is can FedEx’s (FDX) print continue to build momentum or will we return to our prior pattern of disappointing updates? We believe consensus & guidance are still too optimistic,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We expect F2Q22 to come in below consensus. We are also below cons. for overall EBIT driven by misses in Ground and Express which are only partially offset by a beat in Freight. All in, we continue to believe the FY22 guidance cut from last quarter was not enough and see risk to F2Q and FY22 numbers as pandemic tailwinds die down.”

FedEx Stock Price Forecast

Twenty-one analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $304.65 with a high forecast of $369.00 and a low forecast of $250.00.

The average price target represents a 26.49% change from the last price of $240.84. From those 21 analysts, 17 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $250 with a high of $350 under a bull scenario and $125 under the worst-case scenario. The firm gave an “Equal-weight” rating on the multi-brand restaurant operator’s stock.

Several other analysts have also updated their stock outlook. Deutsche Bank raised the target price to $299 from $280. JPMorgan slashed the price target to $305 from $329. Cowen and company cut the target price to $283 from $297.

Technical analysis suggests it is good to sell as 100-day Moving Average, and 100-200-day MACD Oscillator signals a strong selling opportunity.

Check out FX Empire’s earnings calendar

U.S. Earnings Seen Strong, but Supply Chains and Costs Worry Investors

But as business continues to emerge from the coronavirus pandemic, new problems are arising that are taking center stage for Wall Street, including supply-chain snags and inflationary pressures.

In the run-up to earnings season, a number of companies have issued downbeat outlooks. FedEx Corp said labor shortages drove up wage rates and overtime spending, while Nike Inc blamed a supply-chain crunch and soaring freight costs as it lowered its fiscal 2022 sales estimate and warned of holiday-season delays.

“The pace of growth is decelerating, but still it’s at a meaningful level,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. With the product and labor shortages and inflationary pressures, “we’ll be looking to see to what extent demand is there, and what does it mean for the important holiday spending period.”

Analysts see a 29.6% year-over-year increase in earnings for S&P 500 companies in the third quarter, according to IBES data from Refinitiv as of Friday, down from 96.3% growth in the second quarter. The third-quarter forecast is down a touch from several weeks ago, a reversal of the recent trend for estimates.

Third-quarter earnings growth was always expected to be much lower than the blowout gain of the second quarter, when companies had much easier year-ago comparisons because of the pandemic.

“We were going up at such a high clip. The positive revision momentum has lapsed,” said Nick Raich, CEO of independent research firm The Earnings Scout.

Earnings season is kicking off this week with the big banks including JPMorgan Chase.

SUPPLY CHAINS, COSTS

Investors are weighing the impact of sharply higher energy costs on businesses and consumers after a recent surge in oil and natural gas prices. While higher energy prices should be a boon for energy producers, they are an inflationary risk for many other companies like airlines and other industrials and cut into consumer spending.

U.S. companies have so far this year kept profit margins at record levels because they have cut costs and passed along high prices to customers. Some investors are anxious to see how long that can go on.

Third-quarter earnings arrive with the market still wobbly after a weak and volatile September. The S&P 500 in September registered its biggest monthly percentage drop since the onset of the pandemic in March 2020. It was also the index’s first monthly decline since January.

Analysts are skeptical about how much is priced in.

“COVID-related supply chain issues have spread beyond consumer goods. And longer-term signs of global friction are easy to find,” Savita Subramanian, head of U.S. equity & quantitative strategy at BofA Securities, wrote in a note on Friday. But she said these issues are far from being fully priced into stocks.

Morgan Stanley’s analysts say that consensus earnings expectations also have not fully priced in the supply-chain constraints facing companies, making it much harder for companies to surpass estimates at the same rate as in recent quarters.

“Consumer Discretionary companies of all kinds are right in the cross hairs of the supply shortages, higher logistics costs and higher labor costs,” they wrote. Those strategists see the equity market set for a bigger pullback, and say third-quarter earnings could determine how deeply the stock market dips.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch in New York; Editing by Megan Davies and Matthew Lewis)

Why FedEx Stock Is Down By 8% Today

FedEx Stock Falls As Quarterly Report Misses Analyst Estimates

FedEx stock found itself under serious pressure after the company released its quarterly report. FedEx reported revenue of $22 billion and GAAP earnings of $4.09 per share, beating analyst estimates on revenue and missing them on earnings.

The company stated that quaterly results were “negatively affected by an estimated $450 million year-over-year increase in costs due to a constrained labor market which impacted labor availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses”.

FedEx stated that it would increase FedEx Express, FedEx Ground and FedEx Home Delivery rates by an average 5.9% in 2022, while FedEx Freight rates would be increased by an average 5.9% – 7.9%.

For the fiscal 2022, FedEx expects to report earnings of $19.75 – $21.00 per share, compared to the previous estimate of $20.50 – $21.50 per share.

What’s Next For FedEx Stock?

Cost inflation has put significant pressure on FedEx bottom line, and the market is no happy with the company’s results. Currently, analysts expect that FedEx will report earnigns of $21.2 per share in the current year and $23.57 per share in the next year, but these consensus estimates will soon move lower.

While FedEx is trading at roughly 10 forward P/E (based on current analyst estimates) which is certainly cheap for the current market environment, the market does not like higher costs and falling earnings estimates.

FedEx has previously announced its intention to raise shipping rates, so this news had no impact on the stock’s dynamics during today’s trading session.

It remains to be seen whether FedEx stock will attract value-oriented traders ad investors. Current valuation levels look cheap for today’s market environment while the stock has moved from the $320 level in May to the $230 level. In case the market focuses on the company’s longer-term potential in a world where online sales continue to rise at a healthy pace and may further boost earnings of logistics companies, FedEx will have a chance to gain upside momentum.

For a look at all of today’s economic events, check out our economic calendar.