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Markets Take a Breather; FedEx (FDX) Q4 Mixed, Stock -4%

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Market indices took a breather during its initial trading day of a holiday-shortened week, after a solid multi-week rally that caught fire in the A.I. space but broadened out to general Tech and even Industrials. The Nasdaq, as per usual so far in 2023, led the way: down -0.16%, and cracking into the green only minutes before the close; the Dow, unsurprisingly, brought up the rear: -229 points or -0.67%, off session lows of -383 points. Both the S&P 500 and small-cap Russell 2000 came in exactly -0.47%.

We saw strong Housing Starts and Building Permits numbers before today’s open, signifying home-buying demand outweighing the 7.5% mortgage rates that have cranked up over time based on Fed funds rate tightening over the past 15 months. However, while this might be a good thing for homebuilder stocks like Lennar (LEN - Free Report) , Toll Brothers (TOL - Free Report) and KB Home (KBH), this data may also force the Fed’s hand from completing its cycle of rate hikes, which the market had been pricing in since Wednesday of last week.

Later this week, we’ll see Existing Home Sales numbers for May to further illustrate the current housing narrative (following yesterday’s strong Homebuilders’ Survey), but otherwise we’re cool on economic data this week. Thursday’s Jobless Claims and Friday’s S&P Manufacturing and Services PMI are the only main reports due — aside from a plethora of Fed members making appearances — so we’ll be biding our time elsewhere as market levels attempt to hold onto their recent gains.

Reporting fiscal Q4 earnings results after today’s close is delivery and logistics giant FedEx (FDX - Free Report) and results were mixed: earnings of $4.94 per share outpaced the $4.83 expected for the quarter (and still down from the $6.87 per share reported in the year-ago quarter) on revenues which came up short of the Zacks consensus: $21.93 billion versus $22.72 billion, -7% year over year. Weakness in China is the at-a-glance culprit here.

All three major company segments’ revenues came up short for the quarter: Express $10.41 billion, +4.1% on earnings margin, versus $10.74 billion, +4.5% expected; Freight brought in $2.27 billion as opposed to $2.49 billion anticipated (+17.7% versus +20.8% estimated); and Ground brought in $8.3 billion versus $8.44 billion projected. However, earnings margin topped expectations in this category: +12.1% versus +10.7%. The company was also excited about its Network 2.0 optimization in the press release.

None of this could keep FedEx shares from selling off in late trading, however — initially by as much as -7.5%, but settling down to around -4% at this hour. The stock had been up +34% year to date, and has easily outperformed its main rival UPS (UPS - Free Report) year to date: +31% versus +1%, though UPS has the vastly upper hand going back five years. We count FedEx’s earnings report as unofficially one of the very first of the “new quarter,” which for most companies doesn’t even end until a week from Friday.

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