The U.S. economy is closely related to the U.S. stock market. But that relationship is not perfect in a number of ways.
An important way the two differ is international exposure.
According to FactSet, S&P 500 companies1 generate around 40% of revenue outside of the U.S.2 That means these companies are significantly dependent on the health of the international economies in which they operate. They employ abroad, source goods abroad, and sell abroad.
This is not to say the U.S. economy is totally decoupled from the rest of the world: Annual exports account for $3 trillion of the $25 trillion worth of U.S. GDP.
But when you think of the U.S. economy, you generally think about activity inside the borders of the U.S. This includes U.S. employment levels, U.S. manufacturing activity, U.S. services sector activity, etc. This, by the way, includes non-U.S. companies with footprints in the U.S. like Toyota, B.P., Samsung, and Nestle.
We’re discussing this now because of news from FedEx FDX -1.25%↓ , a U.S.-based S&P 500 company. From the company’s press release on Thursday (emphasis added):
First quarter results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter. FedEx Express results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately $500 million relative to company forecasts. FedEx Ground revenue was approximately $300 million below company forecasts.
FedEx is one of the so-called “early reporters” — that is, companies whose quarters end a month earlier than most companies. The last two months of FedEx’s quarter overlaps with the first two months of most companies’ Q3. And so the company’s warning may serve as a leading indicator for the upcoming Q3 earnings season, which kicks off in mid-October.
As Asia struggles with COVID-related lockdowns and Europe wrestles with surging energy costs, companies with significant exposures in these regions may underperform those with greater dependence on the U.S., where the economy has been resilient.