John Carey, Portfolio Manager
March 29, 2019
Ten days ago, FedEx (FDX) announced quarterly results that missed expectations and lowered guidance for its fiscal year ending on May 31, 2019. It is the second consecutive quarter for this to happen to the company. Once again, FedEx pointed to slowing economic growth outside the U.S. and weaker global trade growth as the main reasons for the shortfall and its reduced forward guidance.
Many analysts believe FedEx’s report represents the proverbial “Canary in The Coal Mine” for U.S. corporate earnings and the domestic stock market. For those readers that are unfamiliar with the term, a “Canary In the Coal Mine” is an advanced warning of some pending danger. However, we at Griffin adamantly believe that it is not. The U.S. economy continues to grow (albeit at a slower rate than last year), consumer income is rising, wage gains are rising, and unemployment is near a record low. Undoubtedly, companies which derive significant revenues and earnings outside of the U.S., particularly in China and Europe, may experience disappointing results similar to FedEx. While we are forecasting a slight decline in S&P 500 earnings in Q1 2019 vs.Q1 2018 ($37.50 vs. $38.07 per share), we are projecting a 3.7% full year increase to $168 for 2019 from $162 per share for 2018. As a result, we would use any stock market weakness – particularly in response to our projected modest decline in S&P 500 earnings for Q1 2019 – as a long-term buying opportunity in the overall equity market or for any of your favorite individual stocks.