FedEx CEO Said The Quiet Part Out Loud
Global Recession Is Real.
FedEx CEO Raj Subramaniam gave the global investment community a blunt reality check yesterday, when he stated flat out that the global economy is heading into recession (actually, it’s already there).
“I think so. But you know, these numbers, they don’t portend very well,” Subramaniam said in response to Cramer’s question of whether the economy is “going into a worldwide recession.”
The global shipping giant had looked for a bounce as China released cities from lockdown, but none was forthcoming.
The chief executive, who assumed the position earlier this year, said that weakening global shipment volumes drove FedEx’s disappointing results. While the company anticipated demand to increase after factories shuttered in China due to Covid opened back up, it actually fell, he said.
For Subramaniam, the logic is very simple: if the shipments are not there, if the cargo is not there, then either the supply or the demand is not there, and the lack of either one puts the world economy into recession by definition.
The Markets Believe Him
This much seems clear about Subramaniam’s take on the global economy—the markets heard him and are taking him seriously. US markets were down sharply yesterday, and are heading south again today.
Market commentators identified the FedEx CEO’s comments, coupled with not only the company’s release of disappointing first quarter results but withdrawal of its entire annual outlook and forecast, as the catalyst for the market-wide decline.
FedEx FDX, -22.63% shares were down 23.7% after the global shipper and economic bellwether late Thursday withdrew its annual outlook and forecast sharply lower quarterly profit and lower revenue. The news put pressure on other shipping stocks and dented overall investor sentiment, analysts said, as FedEx CEO Raj Subramaniam, told CNBC late Thursday that the global economy was likely headed for a recession.
Market analysts are anticipating that Subramaniam will be the first of many corporate execs to announce poor quarterly results and point out the horrible economic situation around the world.
“The fact that FedEx expects the US economy to enter into a recession has made traders trade carefully, and there aren’t many who are willing to buy the market,” said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients.
“It is highly likely that we will see a similar message from other companies in the coming days as well, and that may make the overall sentiment even more adverse. The fact is that more and more CEOs are feeling pessimistic about the global economy, and this may not be the best environment for global markets to do well,” Aslam.
Investors are giving the FedEx CEO a great deal of credibility and are taking it out on the financial markets. Yet the message is clear: the global economy is heading into recession, and conditions worldwide are going to get a whole lot worse before they get any better.
Markets Are Having A Bad Week Worldwide
While Subramaniam arguably helped catalyzed today’s stock market decline in the US, markets around the world have not had a good week of it, suggesting that the global conditions he sees are quite a bit more than just one man’s perception of the market.
European stocks are also down hard on the week….
As are China’s….
Even India is posting market declines.
Markets everywhere are agreeing with Raj Subramaniam—the global economy is tanking.
Bond Yields Are Rising
The week has also seen a similar rise in sovereign debt yields. German, British, and US Treasury yields are all up for the 10-year maturity.
Markets are all moving in the same direction globally this week, and that direction is down. Investors who don’t think the world is in a recession think that it’s about to be in one.
Wall Street For Once Takes Its Cue From Main Street
Recessions do not happen because stock markets have a bad day, a bad week, or even a bad month. Stock markets are not the be-all, end-all, of any economy.
However, stock markets frequently respond to economic events and evolutions in the real world. Every so often, Wall Street takes its cue from Main Street. The cue that it has taken now is that the real world economy is on the rocks. The best case scenario is that recession is not here, but that it is definitely on the way, and it will not be long in coming.
The most likely scenario is that recession is already here, and it is going to get worse long before it gets any better.
When FedEx posts dismal numbers it is because there are no packages to ship.
A lack of packages to ship means either that there is no supply to ship, no demand for goods needing to be shipped, or quite possibly both. All three possibilities lead directly to recession, and quickly when the phenomenon is worldwide, as Raj Subramaniam infers to be the case.
Whether the cause is the European self-inflicted energy crisis, China’s Zero COVID lunacies, Russia’s immoral war in Ukraine, or some other factor entirely, Wall Street is waking up to the sufferings and privations that have been on the upswing in the world since the pandemic lockdowns.
Wall Street is not the most clued-in demographic in the human race, but they do understand this much: suffering and privation—recession by any other name—are very bad for business and very bad for investing in stocks.
Whether Wall Street “gets it” over the long haul is debatable, but for today at least, they realize that the global economy is bad and heading at warp speed towards worse.
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Great. Swell. Just when my daughter's RESP will have to be liquidated. I have until April/May 2023 for the economy to bounce back a little.
Doesn't sound good.
Also. Not sure if the war in Ukraine is all on Russia. We played a nice part in making it happen, no?