Stocks Close Lower After Walmart Earnings
2:42 pm Tuesday, July 26th, 2022
The stock market closed sharply lower on Tuesday after corporate news and economic data ahead of the open weighed on sentiment.
There’s been relatively negative corporate earnings, warnings, or a combination of the two from several companies today. Walmart (WMT) cut earnings expectations for Q2 and lowered its FY23 outlook, citing increasing levels of inflation that weighed on discretionary spending. Shopify (SHOP) announced it will cut 10% of its workforce by the end of the day ahead of its earnings report tomorrow.
The basis for Walmart’s warning, though, is the real issue for the broader market. Walmart pinned it on food and fuel inflation, the effects of which prompted its customers to defray discretionary spending on general merchandise.
That approach by customers is forcing Walmart to become more promotional in other general merchandise categories, particularly apparel. That is causing concerns about a trickle-down effect to other retailers, as well as suppliers to Walmart, that is weighing on sentiment and earnings expectations.
Beyond that, however, the inflation travails that are affecting Walmart are also disrupting rate-hike views. Worries that inflation could be stickier at higher levels are forcing market participants to think that the Fed itself could be stickier with its aggressive rate-hike actions.
As for economic news, new home sales declined 8.1% month-over-month in June while consumer confidence fell for the third straight month in July (to 95.7 from 98.4). Also, the IMF cut its 2022 global GDP forecast to 3.2% from 3.6% and lowered its 2023 GDP view to 2.9% from 3.6%.
The mega caps are an important downside driver for the market today. Alphabet (GOOG) and Microsoft (MSFT) are down ahead of their earnings reports after the close. The Vanguard Mega Cap Growth ETF (MGK) is down 2.1% versus a 0.7% loss in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.1% loss in the S&P 500.
With the mega caps driving the market lower, small and mid cap stocks are having a better showing than the broader market. The Russell 2000 (-0.6%) and S&P Mid Cap 400 (-0.7%) are faring better than the three main indices.
The Treasury market is being moved both by the food and fuel inflation warning from Walmart, which doesn’t seemingly bode well for the Fed adopting a softer rate-hike perspective, and the weak data and tepid earnings guidance that is fostering worries about the Fed’s policy actions leading to an eventual recession. The 2s10s inversion has widened to 24 basis points from 21 basis points yesterday with the 2-yr note yield down one basis point to 3.02% and the 10-yr note yield down four basis points to 2.78%.
Reviewing today’s economic data:
