The major averages fell on Friday as Wall Street headed toward a big losing week, and traders absorbed an ugly earnings warning from FedEx about the global economy. The Dow Jones Industrial Average dropped 139 points, or 0.5%. The S&P 500 dropped 28 points or 0.72% while the Nasdaq Composite slid 103 points or 0.9%.

Shares of FedEx plunged 21%, its worst daily drop ever, after the shipments company withdrew its full-year guidance and said it will implement cost-cutting initiatives to contend with soft global shipment volumes as the global economy "significantly worsened."

Transport stocks are typically seen as a leading indicator for the stock market as well as the economy, and FedEx pointed to weakness in Asia as one of the main reasons for its negative outlook. Shares of shipping rivals UPS and XPO Logistics dropped 4% and 7%, respectively, and Amazon's stock fell 3%.

FedEx's announcement comes soon after a hotter-than-expected inflation report in the U.S. on Tuesday, which raised concerns that the Federal Reserve will be forced to cause a recession to cool prices. That data sparked a decline of more than 1,200 points for the Dow.

The three major averages were on pace to notch their fourth losing week in five as a comeback rally looks increasingly like a bear market bounce. The Dow Jones Industrial Average has declined 4.1% this week, while the S&P 500 is nearly 5% lower. The Nasdaq Composite is down 5.5%, headed toward its worst weekly loss since June.

This week's mixed economic numbers, hot inflation reading and FedEx warning have brought the dreaded prospect of "stagflation" back into view. The term typically refers to the 1970s, when the U.S. economy suffered from low growth and persistently high inflation for much of the decade.

However, Goldman Sachs still sees a "soft landing" as a possibility, and Goldman's Chris Hussey wrote on Friday that the economy hasn't stagnated just yet, even after negative readings for GDP to start the year.

Goldman strategists see a 4% 10-year yield and 4.3% for the 2-year next year

Goldman Sachs rate strategists expect the U.S. 10-year yield to peak at 4% by the end of 2023, and the 2-year at 4.3% by the second quarter.

The benchmark 10-year yield was lower at 3.44% Friday afternoon. The 2-year yield was at 3.85%, after rising above 3.9% earlier in the day.

Goldman Sachs strategists had previously expected a high this year of 3.3% in the 10-year but changed that forecast to 3.75% due to higher expectations for Federal Reserve rate hikes.

The strategists said in a note that they expect the front end of the curve to lead yields higher, and that the so-called "flattening" of the curve has also peaked. The yield curve inverted when the yield of the 2-year rose above the 10-year yield.

FedEx warning could be one of many negative earnings revisions

FedEx's warning about its business could be just one of many earnings estimate downgrades from companies and Wall Street analysts in the coming months.

 

As fears of a recession began to rise this summer, many portfolio managers and strategists have predicted that projected earnings growth for 2023 will prove to be too high.

While that projected earnings number has slowly slipped in recent months, it still shows more growth than a recession could likely support, suggesting that some harsh cuts could be in the pipeline.

In the S&P 500, Adobe and FedEx fell around 25% and 23%, respectively. Nucor, Eastman Chemical and International Paper rounded out the top five worst week over week performers within the index, with each posting losses of around 16%.

All five far outpaced the index's weekly loss of 3.8%. Boeing and Dow, Inc. each dropped nearly 9% week over week, making them the biggest losses in the Dow Jones Industrial Average. That's about double the index loss of 4.7%.

Home Depot, Honeywell and Microsoft followed, all falling around 8% this week.