Despite turbulence all across the globe and weakening inflation, Janet Yellen and most of the Federal Reserve’s governors remain steadfast in their assumption that 2015 is going to be a relatively healthy year for the U.S. economy.
The Fed announced on Wednesday it was planning on being “patient” with its plans to raise interest rates … language most assumed meant the Federal Reserve realizes it’s getting closer to a rate hike rather than further away. Through last month, the Fed had frequently used “considerable time” to describe how long it would like to keep interest rates down.
While the optimistic outlook was bullish for most stocks, not every stock had reason to celebrate. Covanta Holding Corp. (CVA), FedEx Corporation (FDX) and MGM Resorts International (MGM) were decidedly bearish performers in the face of a bullish tide.
FedEx Corporation (FDX)
FedEx Corporation led the bearish charge of most transportation stocks on Wednesday, down nearly 4% on last quarter’s earnings and a weakening outlook.
In its fiscal Q2, the company managed to boost its bottom line to the tune of 23%, but that still wasn’t good enough. Earnings of $2.14 per share of FDX stock topped last year’s EPS of $1.57 by a country mile thanks to increased deliveries, but analysts were collectively expecting income of $2.22 per share. The company didn’t see a significant benefit in cheaper gasoline or jet fuel, and that disappointment was compounded by a surprise increase in jet maintenance costs.
What likely sparked the brunt of the near-4% slide from FDX stock, though, was the company’s lowered full-year outlook. The market was expecting a per-share bottom line of $9.12, but FedEx is now saying it only expects a profit of somewhere between $8.50 and $9.00 per share for the current year.
MGM Resorts International (MGM)
Just like FedEx Corporation had plenty of its peers to keep it company on the way down today, so too did MGM Resorts International. Wynn Resorts, Limited (WYNN), Melco Crown Entertainment Ltd (MPEL) and several other major casino stocks were notably deep in the red today, though none as much as the MGM stock, which tumbled more than 4%.
The prod for the selloff is an increasingly familiar story — trouble in Macau. With foot traffic and gambling revenue already dwindling as Chinese regulators step up their scrutinizing of the region’s gambling industry, the outlook for the casino enclave worsened today when it was announced today that China was stepping up its efforts to prevent illegal money-transfers allegedly being made through some of Macau’s casinos.
True or not, the mere possibility was enough to torpedo MGM stock and other casino stocks on Wednesday.
Covanta Holding (CVA)
As if the past several days haven’t been tough enough on Covanta Holding shareholders, CVA stock lost more than 2% today, bringing the month-to-date loss to a total of 14%.
Wednesday’s setback was ongoing weakness driven by Monday’s downgrade from Robert W. Baird and a BB- credit rating from Morningstar. Baird is now only neutral on CVA stock, versus its outperform opinion before Monday’s downgrade. Meanwhile, the BB- credit grade deems Covanta Holding an “above average default risk.”
Although neither opinion is apt to mean much for Covanta Holding in the long run, it’s certainly the kind of news that can spook investors in the near-term. In fact, it’s worth noting an oddly heroic 20% runup from CVA stock between the market bottom in mid-October and the end of November likely set up the bulk of the current pullback.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
