Why FedEx’s stock decline is so bad for the entire stock market

Why FedEx’s stock decline is so bad for the entire stock market

FedEx Corp’s Earnings Warning has put a damper on the broader stock market as a record drop in the parcel delivery giant’s shares has led to half of a Dow theory triggering “sell” signal.

FedEx shares FDX,
-21.40%
fell 21.6% in afternoon trading on Friday to a two-year low. The $44.25 price drop shaved about 270 points off the Dow Jones Transportation Average DJT,
-5.09%,
good for more than a third of the 774 points of Dow shipments, or a decrease of 5.7%. Read more about FedEx’s profit warning.

The transportation tracker is on track to close below the June low, which marked its lowest level in 16 months at the time.

The sell-off of the Dow Transports is an important message about the health of the broader stock market, as the index is seen by many as a leading economic indicator. There’s a saying on Wall Street that the companies in the Dow “take” shipments to buyers what the companies in the Dow Jones Industrial Average DJIA,
-0.45%
“to make.”

And basically, if the shipments don’t catch on, the economy won’t move and the stock market will fall.

Do not miss it: Why FedEx’s earnings warning is such bad news for the US economy, and why FedEx stocks are on track for their worst week since the stock market crash of 1987.

The new low in Dow shipments follows a huge jump of 18.2% from the June low to the mid-August high. But since that high was well below March’s first recovery high, which in turn was below the November 2021 record, the index has continued a pattern of lower lows and lower highs, which many Wall Street chart watchers say defines a bear market. .

And perhaps more importantly, the lower low completes half of a “sell” signal, according to some proponents of the age-old Dow theory of market analysis.

Read also: Dow transports selloff may be a warning sign of something more than just a macro speed bump.

read more: Don’t deny the Dow theory just because it’s over 100 years old.

As Mark Hulbert, MarketWatch contributor and founder of Hulbert Ratings LLC, has written, many agree that there are three key ingredients to a Dow Theory “sell” signal.

Firstly, the Dow Industrials and Dow Transports must undergo significant sell-off after hitting new highs – Check. The respective lows at the close of June marked a 24.4% drop in Dow shipments from the record close in November and an 18.8% drop in the Dow indices from a record close in January.

FactSet, MarketWatch

Second, significant rallies from respective lows fail to reach previous highs – Check. Dow transports bounced 18.2% from their June low and Dow indices recovered 14.3% to mid-August highs, but those highs were well below their respective previous highs.

And third, both indices fall below the lows referenced in the “First” ingredient – the indices are halfway through.

The Dow Transports ticked that box, but the Dow Industrials, which fell 328 points, or 1.1%, Friday afternoon, were still about 745 points above the June 17 close of 29,888.78.

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