WALMART NEWS HURTS U.S. MARKETS

Sell-off comes ahead of the Fed’s statement today

Big retailers and technology companies led stocks lower on Wall Street Tuesday after Walmart warned that inflation is hurting American consumers’ spending power.

The sell-off comes ahead of the Federal Reserve’s latest interest rate policy statement today, when economists expect the central bank to announce another sharp rate hike as it ratchets up its fight against surging inflation.

The S&P 500 fell 1.2 percent, wiping out nearly half of the benchmark index’s gains from last week. The Dow dropped 0.7 percent and the tech-heavy Nasdaq closed 1.9 percent lower.

Walmart slumped 7.6 percent after the retail giant cut its profit outlook for the second quarter and the full year late Tuesday, saying that rising prices for food and gas are forcing shoppers to cut back on more profitable discretionary items, particularly clothing.

The retailer’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 also fell. Target dropped 3.6 percent, Macy’s slid 7.2 percent and Kohl’s fell 9.1 percent.

Investors have remained deeply concerned about inflation’s impact on company profits and how it will affect U.S. consumers. While Americans’ finances are relatively strong thanks to savings built up during the pandemic, those nest eggs are being spent on high gas and food prices.

“The client base of Walmart is obviously in probably the lower quarter or maybe lower third of the income brackets,” said Randy Frederick, managing director of trading & derivatives at Charles Schwab. “Those aren’t people that drive most of the discretionary spending anyway, but they are people who are most vulnerable to the inf lation pressures.”

Stock indexes were in the red from the get-go Tuesday as traders reacted to Walmart’s announcement.

The S&P 500 fell 45.79 points to 3,921.05. The Dow lost 228.50 points to end at 31,761.54. The Nasdaq fell 220.09 points to 11,562.57.

The major indexes are coming off solid gains last week fueled by mostly betterthan-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 today, triple the usual amount. 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 percent to 2.5 percent, the highest since 2018.

Bond yields were mixed Tuesday. The two-year Treasury yield, which tends to move with expectations for the Fed, rose to 3.04 percent from 3.02 percent late Monday. The 10-year yield, which influences mortgage rates, fell to 2.79 percent from 2.82 percent.

Technology stocks, retailers and communication companies were among the biggest drags on the benchmark S&P 500 index. Microsoft fell 2.7 percent, Amazon slid 5.2 percent and Facebook owner Meta Platforms dropped 4.5 percent.

The losses easily outweighed gains by health care and utilities stocks. Small company stocks also fell. The Russell 2000 gave up 12.53 points, or 0.7 percent, to end at 1,805.25.

“(Walmart clients) are people who are most vulnerable to the inflation pressures.”

Randy Frederick of Charles Schwab