Yahoo Finance FedEx and Micron just signaled global growth is completely falling apart
FedEx (FDX) and Micron (MU) just gave stock market bears their latest pound of flesh.
Taking the confluence of negative news from the two global economic bellwethers together, one could reason investors have been right to bid stocks down aggressively since their Oct. 1 highs. The question many should be asking is if stocks reflect what may be a fourth quarter earnings season in January that is littered with profit misses and warnings on 2019.
Let the games begin.
What’s going on: Chipmaker Micron — already in the throes of a 25% stock slide this year on weakening demand for chips — slashed its capital expenditure plans by $1.25 billion for 2019 on Tuesday evening. The culprit is none other than tepid demand for high-end smartphones (cue the Apple bears). “Smartphone unit demand is also continuing to weaken, particularly at a high end in what is seasonally slow quarter for mobile,” Micron President and CEO Sanjay Mehrota told analysts on a conference call. “As we enter calendar 2019, we are seeing weakening demand from our customers.” That’s a big cut nonetheless, and should lead to concerns on companies cutting spending plans in light of more volatile global growth trends.
FedEx also had nothing upbeat to say on Tuesday night. The package delivery giant cut its 2019 profit outlook to $15.50 from $16.60 a share citing worsening demand in Europe and China. FedEx previously saw earnings for 2019 at $17.20 to $17.80 a share. The company will begin to offer voluntary buyouts to some U.S. workers and reduce costs in Europe to try and make up for the sales slowdown.
“Internationally, economic strength seen earlier this year has given way to a slowdown. The peak for global economic growth now appears to be behind us,” said FedEx Chief Communications Officer Raj Subramaniam to analysts on a call. FedEx founder and CEO Fred Smith characterized the U.S. economy as “solid.”
Hardly consoling.
Helpful reminder: Mr. Market has arguably sniffed out a degree of bad news from companies such as FedEx and Micron early on in 2019. The S&P 500 is now trading at 14.5 times forward earnings estimates, falling below the 14.6 times the index troughed in 2015 and 2016, pointed out strategists at UBS. Fourth quarter to date, the S&P 500 is down about 12%. As it stands, that would make it the ninth biggest sell-off in a fourth quarter of a year since the late 1920s, noted UBS.
The bears are living high on the hog right now, so to speak.
The bottom line: Investors have gotten their first dose of what could lay ahead for Corporate America in 2019 as the global economy cools down. In short, it may be ugly... and detrimental to one’s stock trading account.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
Read Yahoo Finance’s Exclusives:
Hasbro CEO: We will return to growth in 2019
Macy’s CEO: Mobile shopping is surging
Procter & Gamble CEO: We aren’t splitting up the company
Coca-Cola CEO: Why we aren’t getting into the alcohol business
