Bearish sentiment arising out of a gloomy macroeconomic forecast by FedEx Corp was somewhat offset by positive housing data to leave the benchmarks mostly mixed. Investors also opted to take a respite following last week's robust four-day rally, spurred by the anticipation and thereafter the announcement of additional economic measures. Meanwhile, another drop in crude prices affected the energy sector for the second day in a row.
The Dow Jones Industrial Average (DJI) emerged as the only gainer, ending a mere 0.09% higher at 13,564.64. The Standard & Poor 500 (S&P 500) slipped 1.87 points or 0.1% to finish yesterday's trading session at 1,459.32. The tech-laden Nasdaq Composite Index hardly changed as it lost 0.03% to end at 3,177.80. The fear-gauge CBOE Volatility Index (VIX) dropped 2.8% to settle at 14.18. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were roughly 5.9 billion shares, lower than the year-to-date daily average of 6.5 billion shares. Declining stocks outnumbered the advancers on the NYSE; as for 54% stocks that dropped, 43% stocks closed in the green.
Benchmarks opened in the red and languished in such territory after FedEx Corporation (NYSE:FDX) slashed its full year guidance. The company now expects 2013 earnings per share in the range of $6.20-$6.60, down from $6.90-$7.40. The company said the profit warning was also a reason for customers shifting to lower-budget carriers. Lower guidance by one of the world's biggest package delivery firms is a serious concern as it hinted at a slowdown in global economic conditions. In fact, the concerns were evident as the company itself spoke of a 'stalling' global economy. Chief Financial Officer Alan Graf said: "Weak global economic conditions dampened revenue growth (and) drove a shift by our customers to our deferred services and outpaced our near-term ability to reduce FedEx Express operating costs to match demand levels".
More importantly, FedEx reduced estimates for US economic growth to 2.2% in 2012 and 1.9% in 2013. The company's management stated: "Global trade has grown faster than GDP, except for the 2000, 2001 meltdown and 2008 and 2009 for 25 years. And over the last few months, that has not been the case.... exports and trade have gone down at a faster rate than GDP has."
Earlier this month, FedEx had slashed its first quarter earnings estimate from $1.45 to $1.60 per diluted share to a range of $1.37 to $1.43 per share. The profit warning was a result of "weakness in the global economy". This time, FedEx once again reminded investors of the grim global economic situation, by once again cutting yearly profit estimates and expectations for slower economic growth. Shares of FedEx slumped 3.1% and that of its peer - United Parcel Service, Inc. (NYSE:UPS) dropped 1.0%.
However, the negative sentiment was somewhat offset by encouraging housing data. The National Association of Home Builders/Wells Fargo housing-market index jumped its highest levels in more than 6 years. The index recorded a gain of 3 points to reach a seasonally adjusted reading of 40. Street estimates projected it to be around 38.
Separately, a drop in oil prices dented the energy sector for the second straight day and it was one of the biggest laggards among the S&P industry groups. The Energy Select Sector SPDR (ETF) dropped 0.7% and stocks including Chevron Corporation (NYSE:CVX), TOTAL S.A. (ADR) (NYSE:TOT), Exxon Mobil Corporation (NYSE:XOM), Marathon Oil Corporation (NYSE:MRO) and Murphy Oil Corporation (NYSE:MUR) plunged 0.2%, 0.6%, 0.3%, 1.6% and 1.4%, respectively.