If you are looking for some economic good news, you won’t find it in Walmart for two reasons…the price of goods and there prediction about our economic future.
Stocks went even lower on Wall Street this week after trading on Tuesday when Walmart warned that inflation was negatively impacting the spending power of the American consumer.
The S&P 500 was down 1.3%, which consumed any modest gains from the day prior. The Dow Jones Industrial Average was down 247 points, or 0.8%, at 31,744 and the Nasdaq Composite decreased to 2%.
Walmart shares dropped to 8.3% on the heels of the mega-retailer cutting its profit outlook for the second quarter and the full year. They said that rising prices for food and gas are forcing consumers to cut back on the more profitable items that are discretionary, like clothing.
A profit warning in the middle of a quarter is rare and certainly a reason for real concern. It is a testimony to how the highest inflation in four decades is affecting the entire retail sector.
This warning did not just affect Walmart stock. Other major chains fell after Walmart made its announcement. Target dropped 4.2%, Kohl’s dropped 8%, and Macy’s hit 6.5%.
All these combined caused investors to be deeply concerned about inflation’s impact on profits within companies. There is also deep concern about the effect it will have on American consumers.
Americans Savings Being Spent on Higher Gas and Food
Fortunately, many built up savings during the pandemic, but those safety nets are now being ransacked by high prices on food and gas.
It’s not all bad news. There were some major gains last week driven by better-than-expected reports on corporate profits. There were also falling yields in the bond market that helped to ease the pressure on stocks. This came after expectations for rate hikes by the Federal Reserve drove higher yields for most of the year.
Experts are indicating that the central bank is expected to announce another rate hike of up to three-quarters of a percentage point this week. That is triple the usual amount. The central bank is committed to an aggressive campaign to deal with the 40-year high inflation rate.
If this hike happens, it will put the Fed’s benchmark rate between 2.25% to 2.5%, which is the highest since 2018.
Bonds provided a mixed message for economists this week. The two-year Treasury yield rose to 3.04% from 3.02% late Monday. This tends to move with expectations for the Feds. But the 10-year yield fell to 2.79% from 2.82%. This typically influences mortgage rates.
The companies that were the biggest hurdles for the benchmark S&P 500 index were technology stocks, retailers, and communication companies. Microsoft was down 3.5%, Amazon decreased to 5.3% and Facebook owner Meta Platforms slid to 4.5%.
These losses were strong enough to outweigh gains by health care and utility stocks.
One of the areas that caught the attention of investors was the corporate earnings reports. Automaker General Motors fell 3.1% after the company indicated its second-quarter profit fell 40% from this time last year. This was caused by computer chip and parts shortages that kept factories from expected outputs. This also drove the sales down in the country by more than 15%.
From April to June of this year, General Motors made $1.67 billion. This is far below what they made in the same period last year, $2.79 billion. And the company could not deliver 95,000 vehicles during the quarter because it did not have the needed parts.
Things could get even worse because tech heavyweights Alphabet and Microsoft report their results after the closing bell, but Meta, Apple, and Amazon report later in the week.
We have to buckle up and prepare for more bad news. Welcome to Biden’s America.