The Stock Market’s Hot Summer Became a Swoon. Where Does It Go Next?
The quarterly profits that FedEx reported on Sept. 21 fell 10 percent, far worse than Wall Street’s expectations, sending its shares down 13 percent in the next days. Bed Bath Beyond tumbled more than 20 percent after reporting underwhelming results on Thursday.
The culprit behind all that corporate carnage is the same: climbing costs that are eating into profit margins.
FedEx executives said labor shortages had cost the company $450 million during the quarter.
“The difficult labor market had the largest effect on our bottom line,” FedEx’s chief financial officer, Mike Lenz, told analysts in a discussion of its results.
Those same dynamics, along with the decrease in government spending as pandemic relief programs petered out, seem to be slowing down the economy. Since June, economists have revised down their growth estimates for 2021 gross domestic product from 6.5 percent to 6.0 percent, which would still be the best year since 1984. G.D.P. growth is a key driver of revenue growth for major corporations, so analysts now think companies are likely to post weaker sales numbers as they face climbing costs.
“There’s a potential for an earnings recession, meaning you have a couple of quarters of negative earnings growth,” said Mike Wilson, chief U.S. equity strategist at Morgan Stanley, who thinks the sell-off could continue through the end of the year. “The risk of that happening is increasing.”
Of course, wild cards could turn the market around. Positive news on Covid treatments or cases can buoy enthusiasm, just as Merck’s announcement did on Friday. So could agreement in Washington on more spending, which could offset the slowdown in growth.
Mr. Wilson also said he was closely watching the behavior of retail investors. The millions of individual traders who flooded the stock market over the last year have helped keep stocks rising. Market slumps have been met with a rush of traders eager to “buy the dip” — but that wasn’t the case in September.
Article source: https://www.nytimes.com/2021/10/04/business/stock-market-fourth-quarter-earnings.html