Walmart issued an earnings warning on Monday, warning that its operating earnings would be less than forecast and will have a drop of around 13 percent. The announcement was swiftly followed by other major US retail companies' shares to plummet, erasing more than $100 billion in the value of stocks in the hours after business hours. (Investopedia describes how trading after hours is carried out here.)
Walmart's stock plummeted by more than nine percent during extended trading as other major retailers also dropped. Target (TGT.N) fell more than 5%, while Amazon (AMZN.O) dropped around 4 percent. In the meantime, Costco Wholesale Corporation (COST.O), Best Buy (BBY.N), Dollar General (DG.N) and Dollar Tree (DLTR.O) each decreased more than 3 percent. Home Depot (HD.N) fell almost 2%.
This is in the midst of a time when the president Biden as well as Treasury Secretary Janet Yellen continue to deny the possibility of a recession, which may be already underway, with the administration even trying to alter the definition of recession.
They may be as defiant as they like however, it is true that, as the old saying goes, “if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” It's likely to be an indication of a recession. The Wall Street Journal is worried:
The alert casts a shadow over the next week, when many multinational and international brands such as McDonald's as well as Procter & Gamble Co. to Visa Inc. and General Motors Co. and General Motors Co., will be releasing updates to investors on their most recent quarterly results as well as their outlook for the remainder of this year.
The drop that took place after hours on Monday indicates that S&P 500 retailing index (.SPXRT) is now down 24 percent in the past year. The New York Times can't hide the grim news, and acknowledges that Biden's soaring inflation is the primary cause:
The announcement, which came shortly after the market had closed and a couple of weeks before the company was scheduled to release its earnings for the second quarter, is yet another indicator of how the rising cost of living is depressing businesses and consumers, and is causing chaos for companies. It is believed that the Federal Reserve is preparing this week to announce the most recent interest rate hikes to control inflation, which is at the highest levels in the last four decades.
Walmart, Target, and other big retailers have been struggling with overstocked shelves over the past few months, as the supply chain problems meant that certain items that are seasonal were on the shelves in the wrong time, and shoppers have resisted purchasing, especially luxury items, because inflation and worries about the future has dominated their shopping choices. The Journal:
Although U.S. unemployment remains near the lowest levels it has seen since the 1970s, consumer confidence decreased in June, reaching its lowest point in record this is an indication of worry as household spending makes up approximately 70 percent of U.S. economic output. A few shoppers, particularly of lower-income families, are switching to discount beer and economy cigarettes, as they are feeling greater pressure on their wallets.
Tuesday could be another lovely day on the market, as more companies cut their earnings estimates and the Fed is preparing to raise interest rates. Unfortunately, the current conditions are looking as if they are going to become worse before they can improve.