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Stock Markets Hit Records Again; FedEx Falls After Hours

By Dan Caplinger - Dec 17, 2020 at 5:39PM

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Investors are more excited than they've been all year.

Thursday was another great day for the stock market, with the Dow Jones Industrial Average ( ^DJI 0.68% ), S&P 500 ( ^GSPC 1.32% ), and Nasdaq Composite ( ^IXIC 0.00% ) all closing at record highs. Market participants aren't necessarily convinced that everything is going to turn out well, but investors apparently don't see many alternatives for putting their money into investments other than stocks.

Index

Percentage Change

Point Change

Dow

+0.49%

+149

S&P 500

+0.58%

+21

Nasdaq Composite

+0.84%

+107

Data source: Yahoo! Finance.

The big question is whether share-price gains across the market are getting ahead of fundamental business growth. Many people turned their eyes toward FedEx ( FDX 1.02% ) Thursday afternoon, as the delivery giant reported its latest quarterly results. Shareholders weren't entirely happy with what they saw, but even the fairly significant drop was only a small dent in the massive run-up that FedEx stock has seen in 2020.

FedEx delivers strong financial results

FedEx shares were up more than 1% in the regular session. But the stock dropped almost 4% in after-hours trading following the release of its quarterly results from the most recent three months.

On its face, FedEx's fiscal second-quarter financial report looked incredibly strong. Revenue climbed 19% to $20.6 billion. Net income almost doubled on an adjusted basis from year-earlier numbers, with adjusted earnings of $4.83 per share rising 92% year over year compared to the $2.51 per share that FedEx put up in the same period last year.

Boxes rolling down conveyor belts.

Image source: Getty Images.

FedEx said that its success came largely from volume growth both in its international priority delivery business and in U.S. domestic deliveries of packages to residential customers. FedEx also implemented pricing initiatives across the board to try to improve profitability. On the whole, those tailwinds were enough to offset the higher costs of handling above-normal demand, as well as some extraordinary costs related to the COVID-19 pandemic.

Yet some investors were troubled by FedEx's continued decision not to offer guidance for the full 2021 fiscal year. With the company doing as well as it is, some had hoped that FedEx might finally feel comfortable enough with the future to give some projections. Yet with the pandemic likely to continue at least for the next quarter, if not for the remainder of FedEx's fiscal year, it's understandable that the delivery giant would want to hold back.

What FedEx's results say about the broader economy

It's no surprise that FedEx and other shipping companies are doing well in the midst of the pandemic. E-commerce has become the dominant option for shoppers in the current environment, and in some places, it's once again becoming the only option as stricter measures limit brick-and-mortar store shopping.

The fact that people are turning to e-commerce and taking advantage of FedEx's shipping services is a good sign for the overall economy. Even during tough times for many families, FedEx's record revenue shows that consumers on the whole aren't holding back. Given how important consumer activity is for the overall functioning of the economy not just in the U.S. but around the world, shippers are playing a vital role in allowing commerce to continue to function.

Investors will have plenty of other signs of how well the economy is doing within the next several weeks, as holiday season figures from retailers start telling the story of what the end of 2020 looked like. For now, even with FedEx's stock slightly down, investors should be pleased at what they're seeing from people and businesses using its shipping services.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
FDX
$240.57 (1.02%) $2.42
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$35,135.94 (0.68%) $236.60
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,655.27 (1.32%) $60.65
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$15,491.66 (0.00%) $0.00

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

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