BY Dennis Hobein:

Contributor, Stock Traders Daily

Real Time Trading Reports:  Included are detailed trading reports designed to help investors realize opportunities in these companies.  The reports are linked to the stock symbols in the article below.

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(La Jolla, CA)  After the market closed last night, shipping giant FedEx (NYSE: FDX) announced that it expects to report second quarter earnings per share of $1.10, substantially ahead of the Street’s expectation for $0.85. In the press release, management stated, “Year-over-year growth in our U.S. overnight express and FedEx International Priority services increased each month during the quarter, aided by inventory restocking and our successful sales efforts. Demand for our international services has improved significantly since the first quarter, particularly in Asia and Latin America." This follows last week’s announcement from Fed Ex that it plans to increase the standard list rates for ground and home delivery by an average of 4.9%. In November, its peer UPS (NYSE: UPS) listed new rates for 2010, which included an identical 4.9% hike for ground packages. Clearly, business has been steadily picking up for the world’s largest shipping companies.

Interestingly, only FDX’s stock has reflected this vast improvement, with an impressive 36% surge higher this year, compared to a 19% move higher for the Diamonds Trust (NYSE: DIA). Shares of UPS, on the other hand, are only up a modest 5% in 2009. Operationally, FDX may have done a better job of managing costs and picking up market share throughout the recession, so a premium is warranted. However, the magnitude of the divergence in stock performance seems overdone. For those interested in entering a trade in UPS or FDX, we strongly encourage you to first review our free trading reports on these stocks, which offer essential risk mitigation tools for any trader.

The Pitfalls Of A Recovery

A common belief is that the performance of FDX and UPS are good leading indicators for the health of the overall economy. This makes sense because if businesses and people are shipping more products, that must mean that spending and demand are increasing. With the much better-than-expected jobs report issued last Friday – non-farm payrolls were -11K vs. -125K expectation – it certainly appears as if the economy is progressing. This, of course, is good for the long-term health of the economy. However, there are a few major pitfalls that stem from the recovery that investors and traders should be aware of.

Perhaps most important is the issue of inflation. As businesses will now be facing more expensive shipping costs to transport their goods, consumers will be burdened with higher prices in order to cover those higher costs. Even discount big-box retailers, such as Wal-Mart (NYSE: WMT), will be forced to push higher transport prices on to its customers. One way to gauge the market’s expectation for inflation is to look at the price of gold – which, most people know has skyrocketed this year. In fact, the SPDR Gold Trust (NYSE: GLD) is up an amazing 31% in 2009, despite a sharp pull-back over the past two sessions. This snap-back may provide an opportunity for traders, but given its staggering move higher, we suggest reviewing our free trading report on this ETF first for risk control ideas.

So, clearly, the market has been anticipating that inflation will be the next roadblock for the economy. While the Federal Reserve has been adamant that this concern is constantly on their radar, the question is whether it has the tools to un-wind the effect from the massive amount of dollars printed to fund the stimulus, bailouts, and government programs put in place over the past two years.

Another concern is that the Fed will act too soon in raising interest rates. One of the ways to defend against inflation is to make it more expensive to borrow money. The fear is that the government and the Fed will overreact to the better-than-expected economic data, and “jump the gun” on interest rates. The ripple effects from this would be wide-spread, but most specifically it would curtail companies’ ability to expand, and make it more expensive and difficult to purchase a home (which is still a huge sore spot).