Wall Street heads for lower open as FedEx warning stokes slowdown fears By Reuters

© Reuters. FILE PHOTO: Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York City, New York, U.S., October 26, 2020. REUTERS/Mike Segar/File Photo

By Shreyashi Sanyal and Medha Singh

(Reuters) – Wall Street’s main indexes were set to open lower on Friday after a profit warning from global delivery bellwether FedEx spooked investors already worried about aggressive rate hikes from the Federal Reserve tipping the economy into a recession.

Shares of FedEx Corp (NYSE:) plunged 20.8% in premarket trading after the company said a global demand slowdown accelerated at the end of August and predicted that it would worsen in the November quarter.

If losses hold through the day, it would mark the steepest one-day percentage drop for the stock, surpassing its 16.4% slump on Black Monday in 1987.

Rivals UPS and XPO Logistics (NYSE:) slid 6.4% and 5.8%, respectively, while Amazon.com Inc (NASDAQ:) slipped 2.8%.

“The Fed will view the FedEx report as an indication that they are on the right path, rather than a warning that the Fed may be moving too aggressively,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

The U.S. Federal Reserve is widely expected to deliver the third straight 75-basis-point rate hike at its policy meeting next week after recent data failed to alter the expected course of aggressive policy tightening.

Adding to the somber mood, the World Bank said the global economy might be inching toward a recession, while the International Monetary Fund said it expected a slowdown in the third quarter.

September, which is a seasonally weak period for markets, will also see the Fed ramp up the unwinding of its balance sheet to $95 billion per month, a move some investors fear may add to volatility in markets and weigh on the economy.

Futures signaled that the benchmark would open below 3,900 points, a level that traders considered as a key support for the index.

“We have seen rising concern about higher yields, and slowing growth and recession risk is something that is weighing on sentiment. So we would not be surprised to see the equity market retest its lows,” said Mark Dowding, chief investment officer, BlueBay Asset Management.

At 8:40 a.m. ET, were down 324 points, or 1.05%, were down 42.5 points, or 1.08%, and were down 142.75 points, or 1.19%.

Meanwhile, the week of the monthly options expiration, ending on the third Friday of every month, has been marked by a greater-than-usual volatility this year, as options-hedging activity has helped amplify market moves.

Goldman Sachs (NYSE:) strategists said in a note that $509 billion of single stock options are set to expire on Friday, 10% higher than the August expiration and 30% higher than July.

GRAPHIC: S&P 500 and OpEx https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwdgdmpo/Pasted%20image%201663270973606.png

On average, the S&P 500 has fallen 1.8% in options expiration weeks, compared with an average weekly gain of 0.09% in non-expiration weeks, according to a Reuters analysis.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 27.58 points.

All the three indexes are set for a sharp weekly fall, with the tech-heavy Nasdaq down 4.6%.

Uber Technologies (NYSE:) Inc dipped 4.3% as the ride hailing platform was investigating a cybersecurity incident after a report that its network was breached.

International Paper Co (NYSE:) and Packaging (NYSE:) Corp of America fell 5.1% and 4.7%, respectively, after Jefferies downgraded both the companies’ stocks to “underperform”.

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