Grim news from Walmart sends US markets tumbling

By Alex Veiga | The Associated Press

Stocks are lower on Wall Street in early afternoon trading Tuesday after Walmart warned that inflation was negatively impacting American consumers’ spending power.

The S&P 500 was down 1% as of 1:02 p.m. Eastern, wiping out modest gains from a day earlier. The Dow Jones Industrial Average was down 108 points, or 0.3%, at 31,883 and the Nasdaq Composite slid 1.6%.

Walmart shares dropped nearly 8% after the retail giant cut its profit outlook for the second quarter and the full year, saying rising prices for food and gas are forcing shoppers to cut back on discretionary items, particularly clothing, that carry higher profit margins.

Walmart’s profit warning in the middle of the quarter is rare, and raised worries about how the highest inflation in 40 years is affecting the entire retail sector. Stocks of other major chains fell following Walmart’s announcement, made after Wall Street’s closing bell on Tuesday. Target was down 4.7%, Macy’s slid 6% and Kohl’s was 6.9% lower.

Investors have remained deeply concerned about the negative impacts of inflation on company profits and how it will impact the U.S. consumer. While Americans’ balance sheets are relatively strong from the savings they built up during the pandemic, those savings are being spent on high gas and food prices.

The major indexes are coming off solid gains last week fueled by mostly better-than-expected reports on corporate profits. Falling yields in the bond market also helped, easing the pressure on stocks after expectations for rate hikes by the Federal Reserve propelled yields higher much of this year.

The central bank is expected to announce a rate hike of up to three-quarters of a percentage point on Wednesday, triple the usual margin. The central bank is waging an aggressive campaign to stem four-decade high inflation. The expected hike would put the Fed’s benchmark rate in a range of 2.25% to 2.5%, the highest since 2018.

Bond yields were mostly lower Tuesday. The two-year Treasury yield, which tends to move with expectations for the Fed, held steady at 3.02%. The 10-year yield, which influences mortgage rates, fell to 2.78% from 2.82% late Monday.

Technology stocks, retailers and communication companies were among the biggest drags on the benchmark S&P 500 index. Microsoft was down 3.3%, Amazon slid 4.4% and Meta was 3.3% lower.

Those losses easily outweighed gains in the health care and utilities sector stocks. Small company stocks also fell, sending the Russell 2000 0.6% lower.

Investors had their eye on the latest batch of corporate earnings reports.