Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of XPO, FedEx, and UPS Jumped Friday Morning

By Lou Whiteman - Mar 13, 2020 at 11:59AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Transports get a lift on hopes that a worst-case economic slowdown can be avoided.

What happened

Shares of leading transport companies got a boost at the open Friday morning, part of a broader market jump, on improved chances of an economic stimulus package being approved and consumer sentiment holding up better than expected.

Shares of XPO Logistics (XPO -0.64%) opened up more than 10%, and shares of FedEx (FDX 2.68%) and United Parcel Service (UPS -0.20%) opened up more than 5%, on hope that the worst-case economic impact of the COVID-19 coronavirus can be avoided.

So what

This was already shaping up as a challenging year for transport and shipping stocks even before the coronavirus outbreak, with fears growing that a slowdown in China and parts of the developing world could eat into global volumes. The Cass Freight Index, a closely watched gauge of shipping activity, fell 9.4% year over year in January, and investors are assuming activity continued to decline in February as the outbreak spread.

Shares of UPS are down 23% year to date, and XPO and FedEx are each down more than 27%, meaning the market is pricing in an extended downturn. So it is no surprise the stocks got a bit of a boost on suggestions that the eventual fallout from the outbreak might not be as bad as feared.

Cargo is unloaded from the back of an airplane.

Image source: Getty Images.

As expected, the University of Michigan Consumer Sentiment Index fell at the start of the month, to 95.9 from 101. But the fall was not as bad as what economists had predicted, and it's still near the average for all of 2019. Markets read that as a hopeful sign that consumer spending has not fallen off a cliff due to the novel coronavirus.

The stocks also benefited from a number of actions designed to reassure confidence in the economy. The New York Fed on Friday morning announced it would boost Treasury buying operations to try to support markets. And Treasury Secretary Steven Mnuchin appeared on CNBC, saying the White House is close to a deal with Congressional leaders on a stimulus package.

Now what

This is a volatile time, and until there is a sense that the coronavirus outbreak is under control, investors should expect these stocks to continue to trade up and down based on headlines. There is little doubt the outbreak will have some impact on shipping volumes, and therefore some effect on quarterly earnings. How severe that is or how many quarters will be affected remains impossible to know.

The uncertainty comes at a difficult time for FedEx and XPO in particular. FedEx had a miserable 2019 and had hoped to show a recovery in 2020, but could find it challenging to grow in a difficult environment. XPO is exploring the sale of one or more of its business units at a time when dealmakers could be gun-shy.

These are all solid companies with the wherewithal to ride out the crisis regardless of how long it lasts, and the potential to deliver strong returns for shareholders over time. For those able to ride out the turbulence, there is no reason to sell. Just be warned that the volatility is almost certainly not over.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

XPO Logistics, Inc. Stock Quote
XPO Logistics, Inc.
XPO
$47.84 (-0.64%) $0.31
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
UPS
$184.63 (-0.20%) $0.36
FedEx Corporation Stock Quote
FedEx Corporation
FDX
$229.61 (2.68%) $6.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.