Walmart’s surprise profit warning has cast a pall over the busiest earnings day of the year Tuesday, with stocks set to open lower as the Fed begins its key rate meeting.
U.S. equity futures moved lower Tuesday, while the dollar steadied and oil prices traded higher for a second consecutive session, as investors braced for one of the busiest earnings sessions of the year and the Federal Reserve kicked-off its two-day policy meeting in Washington.
Stocks, alongside investor sentiment, were hit last night by a surprise profit warning from Walmart (WMT) – Get Walmart Inc. Report, with the world’s biggest retailer slashing its near-term forecasts amid a pullback in discretionary spending from its price-conscious customer base.
Walmart noted that “increasing levels of food and fuel inflation are affecting how customers spend”, adding that a build-up in inventory from the previous quarter will likely mean deeper markdowns on clothes and other items to compensate for the extra cash customers are having to spend on food and gas.
That’s likely to narrow profit margins for the year, Walmart cautioned, and trim earnings growth. Adjusted earnings are forecast to slide between 8% and 9% for the second quarter, and 11% to 13% for the year, a sharp change from its May forecast of just a 1% pullback.
Walmart’s after-hours slump will likely clip around 70 points from the Dow, with downside moves from other major retailers, including Amazon (AMZN) – Get Amazon.com Inc. Report, adding to the morning’s cautions tone.
A host of second quarter earnings are on tap for today’s session, as well, including updates from Coca-Cola (KO) – Get Coca-Cola Company (The) Report, 3M (MMM) – Get 3M Company Report, McDonald’s (MCD) – Get McDonald’s Corporation Report, General Electric (GE) – Get General Electric Company Report, General Motors (GM) – Get General Motors Company Report and United Parcel Services (UPS) – Get United Parcel Service Inc. Report. Microsoft (MSFT) – Get Microsoft Corporation Report, Visa (V) – Get Visa Inc. Report and Google parent Alphabet (GOOGL) – Get Alphabet Inc. Report will report after the bell.
Collective S&P 500 earnings for the second-quarter are forecast to grow by around 6.2% from last year, to a share-weighted $467.2 billion, but that pace is largely the result of record profits for the energy sector. Stripping away that contribution leaves earning down 3.2% from last year, according to Refinitiv data.
The muted earnings season underscores the ongoing debate as to whether the U.S. economy, or indeed the world, is slipping into recession amid record high inflation, supply chain disruptions and a retrenchment in risk appetite from global investors.
The Atlanta Fed’s GDPNow forecasting tool suggests the U.S. economy is contracting at a 1.6%, while data from the Commerce Department later this week is likely to indicate a second consecutive quarter of shrinkage,
Against that weakness, however, oil prices found their footing in overnight trading, with dealers citing supply tightness for the two-day bounce that could stall the six week run of declines in domestic U.S gas prices.
The AAA motor club noted that average pump costs have fallen another 3 cents overnight, to $4.327 per gallon, a 15.3% decline from the record highs reached in early June.
WTI futures contracts for September delivery, which are tightly-linked to gas prices, were marked $1.78 higher in overnight trading at $98.48 per barrel while Brent contacts for the same month rose $1.61 to $106.76 per barrel.
In overseas markets, Europe’s Stoxx 600 was marked 0.08% higher in Frankfurt trading, supported by gains from the energy sector and better-than-expected second quarter earnings from brands giant Unilever UL. Overnight in Asia, reports of support for China’s property sector gave domestic stocks a boost, helping the region-wide MSCI ex-Japan index to a 0.46% gain heading into the close of trading.
In the U.S, benchmark 2-year note yields held at 3.024% following a mixed auction of $45 billion in new paper yesterday, while 10-year notes were pegged at 2.783% in overnight dealing.
On Wall Street, futures tied to the S&P 500 are indicating a 14 point opening bell dip while those liked to the Dow Jones Industrial Average are priced for an 114point move to the downside. Futures linked to the tech-focused Nasdaq are indicating a 65 point pullback.
3M shares were an active name in pre-market, rising more than 6% after posting stronger-than-expected second quarter earnings and unveiling plans to spin-off its healthcare business.
General Electric jumped 3.5% after better-than-expected second quarter earnings Tuesday, although the industrial group cautioned that the current macro environment meant the industrial group is ‘trending toward the low end’ of its prior full year profit forecasts.
Coca-Cola gained 1% after beating Street earnings forecasts and lifting its full-year sales guidance as the iconic beverages group passed on price increases to offset inflation-linked input costs.
UPS posted better-than-expected second earnings as well, thanks in part to a big leap in the price of domestic parcel revenues, but the stock fell 1% after it repeated its profit guidance,
General Motors, however, slumped 3.5% after it published softer-than-expected second quarter earnings and said it would slow hiring and cut spending as it prepared for what could be weaker demand over the final half of the year.
McDonald’s was moving lower, too, falling 0.1% despite stronger-than-expected second quarter earnings powered by impressive comparable sales.
