FedEx: Bellwether or just another stock?

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After FedEx Corp. slashed its quarterly earnings forecast on Tuesday evening and warned about the global economy, market watchers shuddered. This, after all, is a bellwether company – the bellwether company, according to some – whose fortunes provide a clear indication of what's happening in the wider world.

If so, we're in trouble. For the quarter ended Aug. 31, FedEx now expects earnings ranging between $1.37 (U.S.) and $1.43 a share. That's down from an earlier forecast, and it marks the first decline in year-over-year earnings in nearly three years.

"Earnings during the quarter were lower than originally forecast, as weakness in the global economy constrained revenue growth at FedEx Express more than expected in the earlier guidance," the company said in a statement.

The reason FedEx's guidance receives so much attention is because its fortunes resonate beyond the company itself. It ships parcels all over the world, and when shipping activity is in decline that's a good sign that the economy is also wavering. And declines can show up at FedEx far faster than they will in economic data, or so the thinking goes.

But just how reliable is FedEx as a bellwether stock? If recent activity is any indication, its reputation is mixed.

For example, its share price successfully predicted the bear market decline that followed the financial crisis about five years ago. The shares began to retreat from their high point in February 2007, five months before the benchmark S&P 500 began to show any signs of concern. By the time the S&P 500 began to retreat, in October 2007, FedEx shares had already fallen 12 per cent.

However, FedEx shares did not give an early indication that the global economy was on the mend. The share price bottomed out in March 2009 – down more than 70 per cent from their high – on the same day that the S&P 500 hit bottom.

As for earnings, FedEx began to reflect a slowing global economy in 2007: It lowered its growth outlook in March of that year and then reported slightly lower-than-expected earnings in June, due to worse-than-expected U.S. shipments.

But the U.S. economy was already creaking at this point, making FedEx's results look lagging rather than prescient: U.S. gross domestic product in the first quarter rose a mere 0.6 per cent, soon to be revised down to 0.5 per cent.

If FedEx was acting as a bellwether here, few knew about it. After announcing the quarterly results, the company's chief executive said that he anticipated U.S. economic growth would pick up in the second half of 2007. And investors sent the shares up 1.6 per cent, which is an odd direction if they believed this bellwether was pointing to troubles ahead.