Tuesday saw US stocks take a steep dive after reports of Walmart and Home Depot's fourth-quarter earnings and projections sparked worries about the vitality of the American consumer. Walmart CFO John Rainey said during the earnings call that “the consumer is still very pressured, and if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods.” Shares of Home Depot, an important part of the Dow Jones and S&P 500, tumbled by over 5% after drastically reducing their forecasts for 2024. Flat sales are anticipated, leading to worries of a recession as we progress through the second half of the year.
Despite topping revenue expectations, Walmart's stock dropped by almost 2% in the morning session following the announcement of a lower outlook for the coming year. The Chief Financial Officer of Walmart expressed his concern about the consequences of inflation on the American consumer. Meanwhile, Home Depot (HD) posted its first revenue miss since November 2019, where fiscal Q4 sales totals of $35.83 billion missed expectations by -0.21%.
Both the Dow and S&P 500 had their worst day since December 15, with the former plummeting 696 points and the latter 2%. This comes out to a 2.1% decrease for the Dow and a 2% decrease for the S The Nasdaq Composite ended the day with a 2.5
Around 70% of the US gross domestic product (GDP) is attributed to consumer spending, the broadest indicator of the US economy. Therefore, any decline in spending has the potential to negatively affect economic growth and could even lead to a recession.
The advantages of Walmart and Home Depot
Gutman noted that Walmart stocks could benefit if consumer health turns out to be better than expected, as reflected in the upcoming earnings reports by retailers such as Costco and Target. At the Federal Reserve's January gathering, a suggestion was mentioned that has not yet been given attention by markets: that, since 2018, states have doubled the size of their emergency funds by retaining some of the financial assistance resulting from the pandemic, and could potentially pass on these savings to citizens by reducing taxes.
The most recent economic data has been positive. Concerning inflation and alerts from influential retail establishments such as Walmart and Home Depot, traders are apprehensive that the Fed, which had already been inclined to raise rates, will maintain them at a higher level for a longer period of time. Home Depot also lowered its outlook for the year ahead as executives struck a more cautious tone about recession and inflation forecasts on the call that followed earnings.
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