Shares of automotive stocks were sliding today as investors across all sectors processed comments by the FedEx CEO concerning the economy.
While FedEx is a transportation stock, the company's business is largely viewed as an indicator of how the economy is doing -- and the company believes things aren't looking good.
FedEx released its first-quarter results late yesterday, showing sales and earnings fell below analysts' consensus estimates. The company withdrew its full-year guidance and announced store closures. Its CEO also believes a worldwide recession is coming.
That news caused worry among investors today and it's likely what caused Nio (NIO 3.49%) to drop 6.4%, Ford (F 0.08%) to fall 1%, and Lucid Group (LCID 1.19%) to slide 1.8% on Friday.
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So what
FedEx's latest quarterly results typically aren't of much interest to automotive investors, but the company pulling its full-year guidance because of a slowdown in shipments and the comments by its CEO made investors jittery today.
The delivery company said that "global volumes declined as macroeconomic trends significantly worsened later in the quarter" and that it is implementing cost-cutting measures to offset the weakness.
FedEx said it is putting a freeze on new hiring, closing 90 stores, and will also close five corporate locations.
If that weren't bad enough, CEO Raj Subramaniam told CNBC, "We are a reflection of everybody else's business, especially the high-value economy in the world" and that he believes the economy will enter a "worldwide recession."
That's not exactly what Nio, Ford, and Lucid investors wanted to hear today. Car companies can be especially susceptible to any economic slowdown because consumers can pull back on spending -- especially for expensive goods like new cars.
These automakers are already grappling with rising costs, supply chain issues, and semiconductor shortages that have hurt their production. Add in a potential recession and these companies could have a lot more problems ahead.
Now what
These economic fears come on the heels of the latest Bureau of Labor Statistics report issued earlier this week that showed that the Consumer Price Index increased by 0.1% in August, much higher than the 0.1% decrease some economists were expecting.
Persistently high inflation is making the cost of materials more expensive for Nio, Ford, and Lucid, which has resulted in each of the companies raising prices for some vehicles.
High inflation also means that the Federal Reserve will likely continue hiking interest rates to try to tamp it down, with the next rate increase coming as soon as next week. And while inflation needs to come down, investors are concerned that the Fed will slow the economy too much, and end up curbing demand for new vehicles.
With inflation still near a 40-year high, supply chain issues plaguing the industry, and increasing signs that an economic slowdown could be on the horizon, it's not all that surprising to see these automotive stocks falling today.
But investors should keep in mind that all of these issues don't necessarily mean that Nio, Ford, and Lucid aren't good investments. It just means that investors will have to be patient right now as the companies find their footing during a difficult time.
