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Can Stocks Shrug Off the FedEx Warning?


Shares of FedEx (FDX) were off less than 1% early Wednesday morning after the company guided down earnings estimates after the bell yesterday. Later in the day, they are trading down around 2%. For the quarter ending August 31, FedEx now expects to earn between $1.37 - 1.43 per share versus prior guidance of $1.45 - 1.60. The company cited "weakness in the global economy" as a reason for the revision.

Along with fellow shipping juggernaut UPS (UPS), FedEx is considered a key "tell" for the global economy. With European Central Bank President Mario Draghi set to outline rescue plans for Europe later today, a critical U.S. jobs report at the end of this week, and a Fed statement next Thursday, Breakout asked Todd Schoenberger, managing principal of The BlackBay Group if FedEx's warning was a portent of ill news to come.

Schoenberger says economic weakness is a given but the impact on corporate earnings has yet to be factored into the market. FedEx could have figured out how to make the EPS look decent through "headcount reduction" (read: firing people) or accounting fudges. The fact that they didn't is a sign that weak revenues seen in recent earnings reports is finally hitting the bottom line. Stocks are demonstrably not rational on a day-to-day basis but, eventually, earnings matter.

It's nothing but hope propping up the market, as Schoenberger sees it. Hope that Draghi and Ben Bernanke have stimulus bazookas in the closet; hope for a recovery that never comes; and hope that stocks will one day get back on the glide path that carried the day from 1982 until 2008. "When are we going to start talking about fundamental analysis again?" Schoenberger howls in the attached clip.

Once you can answer that question, it'll probably be time to sell stocks. Until then the markets don't seem concerned about FedEx, China, or anything else. Buying good news and ignoring everything else has been the dominant strategy for 2012 to date. Regardless of what you think stocks should do, history suggests that betting against the trend is a losing play.