S&P 500 Drops 1.2% to 3,920s, Walmart Slumps 8% on Surprise Profit Warning

Key Points

• Retail stocks led a slide on Wall Street on Tuesday after a surprise Walmart profit warning.
• The S&P 500 fell 1.2% to the 3,920s and the Nasdaq 100 fell 2.0% under 12,100.
• Post-earnings strength in Coca-Cola and Mcdonald’s helped cushion losses for the Dow.

Retail Stocks Lead Wall Street Lower After Walmart Profit Warning

Major US equity indices dropped on Tuesday after a surprise profit warnings from Walmart weighed heavily on retail stocks, including the likes of Target and Amazon, and as a new agreement in Europe on gas rationing measures plus soft Consumer Confidence data in the US highlighted global recession risks. The S&P 500 index was last down 1.2% and trading in the 3,920s, where it is for now finding support at its 50-Day Moving Average.

Unsurprisingly, the S&P 500 Consumer Discretionary GICS sector was the underperformer, dropping 3.0%. Walmart’s profit warnings, which comes weeks ahead of when it is scheduled to release Q2 earnings, warned that surging inflation in the US is damaging the willingness of consumers to spend on discretionary items, sending a chill across the sector. News that Amazon plans to raise its Prime subscription price by as much as 43% in Europe failed to deliver a boost to its stock price, as AMZN traders brace for the company’s earnings release later this week.

The jitters also hit major tech names Alphabet and Microsoft, both of whom are scheduled to post earnings after Tuesday’s close. The Nasdaq 100 index was last down 2.0% in the 12,100 area, now over 4.0% since last week’s multi-week peaks and eyeing a test of its 21 and 50DMAs which sit either side of the 12,000 level.

KO, MCD Cushion Losses For Dow Jones

Strength in Coco Cola and McDonalds after both posted strong earnings prior to the open helped cushion the losses for the Dow Jone Industrial Average, which was last down x% in the 31,800s. The former beat expectations on both the top and bottom lines and raised its forecast for full-year 2022 growth to 12-13% from 7-8%, though also noted that commodity price inflation is a growing headwind. McDonalds, meanwhile, saw higher than expected same-store sales growth amid price rises, though the company’s CEO warned that the environment remains challenging.

In other notable earnings releases, General Motors missed analyst forecasts, while UPS beat expectations thanks to higher courier prices. Meanwhile, Coinbase Global’s share price was hit by news that the US Securities & Exchange Commission is investigating the US-based cryptocurrency exchange over potentially listing unregistered securities.

Macro Tone Downbeat Pre-Fed

Long-term US yields have since pared back most of their earlier drop, but the tone to global macro trade remains very much on the defensive. Yields in Europe also tumbled on Tuesday, while Italian and German stocks suffered after EU energy ministers agreed on a somewhat watered-down plan to cut back on gas usage between now and next March, with Russia having further reduced Nord Stream 1 flows to just 20% of capacity.

Even though the EU isn’t yet at the point of gas rationing, recent data has highlighted that sky-high energy costs and massive uncertainty are already having a chilling impact on economic activity there and markets seem to be moving to price in a recession. Though things aren’t quite as bad in the US, markets also seem to be increasingly bracing for incoming recession, which a further drop in US Consumer Confidence data on Tuesday highlights as a growing risk.

Bond and money markets have been sending a message that the Fed is likely to start softening its tone on the outlook for tightening in 2023 amid signs that inflation has likely peaked and the economy is weakening. Traders will be looking for any such signals in Fed Chair Jerome Powell’s post-meeting press conference on Wednesday. The Fed is expected to raise interest rates by 75 bps for a second successive meeting, effectively closing out its pandemic era stimulus.