The market just can't shrug off another dose of negative news from shipping giant FedEx (FDX), trading down over 2% after reporting fiscal first-quarter results this morning. EPS and revenues beat estimates, but the company slashed its 2013 full-year outlook to $6.20 - $6.60 from $6.90 - $7.40. FedEx, widely viewed as an economic bellwether, is expecting a global manufacturing slowdown deep enough to drag on the economy and its earnings over the next year. This is the company's second warning citing the economy this month.
"I think FedEx is really a reflection more of the summer soft patch and the fact that Europe is in a recession, but I think it's still risk-on because forward-looking you have QE-forever, you have the ECB moving from rhetoric to action with a bond-buying program, and you have China stepping in with some infrastructure stimulus spending," says Hank Smith, chief investment officer at Haverford Investments. "I don't see this one report turning the risk-on trade off."
Smith is sticking with his bullish thesis, despite the other half of it hinging on political resolution in Washington to lift the economy. While it sounds unrealistic to rely on D.C. these days, he reminds of us of what Bob Woodward covered in his new book --that House Speaker John Boehner and President Obama were closer than you think to striking an impactful debt deal last year.
If the fiscal cliff is averted and a new Congress --working with either President Obama or Republican nominee Mitt Romney-- can implement pro-growth tax reform, Smith says GDP and earnings estimates will be revised dramatically higher and take the stock market along for the ride.
In the meantime, don't fight the fed is what Smith is going with now.
"With the Fed extending this low interest rate environment out into mid-2015, it makes good, attractive dividend-paying companies even more attractive than they are right now," he says. "On top of that, we're seeing corporate America continue to return cash to shareholders in the form of dividend increases, initiating new dividends and share buybacks, and we don't think that trend is going to change in the near future."