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Dow sheds a lot more than 200 points after Walmart profit warning, S&P 500 falls 1%

U.S. stocks fell Tuesday after Walmart cut its earnings forecast, sending other retail shares lower and increasing concern that consumer spending may not be strong enough to help keep the U.S. out of a recession.

The Dow Jones Industrial Average fell 228.50 points, or 0.71%, to 31,761.54. The S&P 500 retreated by 1.15% to 3,921.05. The Nasdaq Composite declined about 1.87% to 11,562.57. All the major averages were still on pace for his or her best month of 2022.

Walmart cut its quarterly and full-year profit estimatesdue to rising food inflation. This alarmed investors who deliberated the implications for other retail stocks. The big-box retailer said higher prices are spurring consumers to pull back on general merchandise spending, particularly in apparel.

Walmart plunged 7.6% Tuesday and dragged other retailers with it. Kohl’s and Target dropped 9.1% and 3.6%, respectively. Among apparel companies, Macy’s was on the list of hardest hit, down 7.2%. Nordstrom and Ross each lost a lot more than 5%, and TJX Companies shed about 4.2%. The SPDR S&P Retail ETF fell nearly 4.2%.

“It is important from the Walmart announcement is how inflation is changing what folks buy,” said Robert Cantwell, portfolio manager at Upholdings. “Food now accocunts for a more impressive share of individuals’ budgets, but overall spending still generally remains intact.”

The retail turmoil bled into e-commerce stocks. Shopify tumbled about 14.1% following the payments provider announced it’s laying off about 10% of its global workforce, citing a pullback in online spending and saying it misjudged just how long the pandemic-fueled e-commerce boom would last. The business will report its earnings Wednesday.

Amazon fell 5.2%. Square parent Block and PayPal, both which operate major merchant services businesses, dropped roughly 7.1% and 5.7%, respectively.

Inflation in addition has changed the expense of production for companies like General Motors. Its shares fell 3.4% following the company missed earnings estimates, blaming supply chain disruptions that forced factory shutdowns and led it to ship fewer vehicles than expected.

UPS shares also slid 3.4% following the shipping giant reported declines in its international and offer chain businesses.

On the other hand, Coca-Cola shares rose 1.6% following the beverage giant topped earnings and revenue expectations, citing a sales volume recovery from the pandemic and higher pricing.

Shares of McDonald’s added nearly 2.7% following mixed second-quarter results, where net sales were hurt partly by the closure of locations in Russia and Ukraine, but international growth elsewhere fueled a growth same-store sales.

Industrial stocks were earnings winners, too. Shares of 3M rose 4.9% following the company beat earnings and revenue estimates and announced plans to spin its healthcare business right into a separate publicly traded company. General Electric posted better-than-expected results, citing recovery in the aviation industry that boosted its jet engine business. Its shares gained 4.6%.

Traders may also be bracing for an onslaught of megacap tech earnings and economic data this week, along with the upshot of the Federal Reserve meeting, that will assist Wall Street direct its expectations for all of those other year.

“There’s this moderating of earnings expectations,” said Stephanie Lang, chief investment officer of Homrich Berg. “The entire corporate sentiment appears to be declining, there exists a large amount of cautionary commentary around inflation, the dollar”

“Because the Fed continues on its trajectory using its definitive goal to weaken demand for goods and services, which will result in a weaker top line if they’re in a position to get inflation in order and temper that demand,” she added. “That’s something we’d take into account for the next half of this season.”

Fed meeting and the market’s expectations

On Tuesday, the Federal Reserve commenced its two-day policy meeting. Traders are widely expecting a three-quarter percentage point hike and you will be searching for clues on the near future interest path and what it might mean for equity market pricing.

“The end result is the Fed, regardless of the way you cut it, will quickly proceed to that restrictive stance that may have a toll on the economy,” Lang said. “It will make it happen quickly enough, be it a supplementary 25 basis points the next time pitched against a month later. Next six months we will maintain a financially restrictive environment.”

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