Will the Stock Market Tank on Earnings Warnings?

Earnings WarningsI don’t think the upcoming earnings season is going to be a bad one, but when FedEx Corporation (NYSE/FDX) says that the global economy is worsening, I pay attention. For its fiscal year, ended in May, the company lowered guidance for its earnings per share (EPS) range to $6.20–$6.60, down from the previous forecast of $6.90–$7.40 per share. FedEx is a member of the Dow Jones Transportation Index.

The company’s recent quarterly earnings beat the Street, but it guided its fiscal second-quarter earnings below consensus and lowered its earnings guidance for all of fiscal 2013 to below consensus. FedEx has been flat on the stock market all year, similar to the Dow Jones Transportation Index, as can be seen in the company’s stock chart below.

FedEx Corp Stock Chart

Chart courtesy of www.StockCharts.com


We know that the stock market has been going up in anticipation of new monetary stimulus from the Federal Reserve, but I repeat my view that the stock market is ahead of current economic fundamentals. For the U.S., eurozone, and Chinese economies, 2013 is likely to be a very difficult year. I think it’s likely that the U.S. economy will experience another recession before a new business cycle begins in 2014/2015.

Intel Corporation (NASDAQ/INTC) is another big-name company that recently lowered its third-quarter earnings forecast. Citing weakness in the eurozone and toughening domestic competition as the reasons, Intel’s share plummeted on the stock market. (See “Stock Market Action Just Temporary—the Party Will Soon Be Over.”)

Intel Corp Stock Chart

Chart courtesy of www.StockCharts.com

Another company that recently reported bad earnings was Titan Machinery Inc. (NASDAQ/TITN), a previous stock market darling. This company runs a network of farm equipment dealers, and its earnings recently plummeted due to the continued drought in the U.S. Midwest. On the stock market, the company’s share price dropped 30%.

So it’s very evident that business conditions are still tough, and it continues to be difficult for companies to grow earnings in the U.S. economy and globally. The stock market is still fairly valued but is slightly ahead of current fundamentals. Because the third quarter is virtually over, it’s my hope that we’re not going to get a lot of earnings surprises with the upcoming third-quarter earnings season nearly here. Big-cap companies that are about to miss on earnings usually warn the stock market beforehand.

Corporations have been pretty tight-lipped about business conditions recently. They were conservative with their earnings outlooks last quarter, and it’s a waiting game