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Walmart cuts outlook over inflation pains, sending shockwaves through Wall Street

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Stocks are lower on Wall Street in early afternoon trading Tuesday after Walmart warned that inflation was negatively impacting American consumers’ spending power.

The S&P 500 was down one per cent as of 1:02 p.m. Eastern, wiping out modest gains from a day earlier. The Dow Jones Industrial Average was down 108 points, or 0.3 per cent, at 31,883 and the Nasdaq Composite slid 1.6 per cent.

Walmart shares dropped nearly eight per cent after the retail giant cut its profit outlook for the second quarter and the full year, saying rising prices for food and gas are forcing shoppers to cut back on discretionary items, particularly clothing, that carry higher profit margins.

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Walmart’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 fell following Walmart’s announcement, made after Wall Street’s closing bell on Tuesday. Target was down 4.7 per cent, Macy’s slid 6 per cent and Kohl’s was 6.9 per cent lower.

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Investors have remained deeply concerned about the negative impacts of inflation on company profits and how it will impact the U.S. consumer. While Americans’ balance sheets are relatively strong from the savings they built up during the pandemic, those savings are being spent on high gas and food prices.

The major indexes are coming off solid gains last week fueled by mostly better-than-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 on Wednesday, triple the usual margin. 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 per cent to 2.5 per cent, the highest since 2018.

Read more: Inflation in Canada soared 40 years ago. Is today’s price surge any different?

Bond yields were mostly lower Tuesday. The two-year Treasury yield, which tends to move with expectations for the Fed, held steady at 3.02 per cent. The 10-year yield, which influences mortgage rates, fell to 2.78 per cent from 2.82 per cent late Monday.

Technology stocks, retailers and communication companies were among the biggest drags on the benchmark S&P 500 index. Microsoft was down 3.3 per cent, Amazon slid 4.4 per cent and Meta was 3.3 per cent lower.

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Those losses easily outweighed gains in the health care and utilities sector stocks. Small company stocks also fell, sending the Russell 2000 0.6 per cent lower.

Investors had their eye on the latest batch of corporate earnings reports.

Shares of automaker General Motors fell 2.7 per cent after the company said its second-quarter profit fell 40 per cent from a year ago, as computer chip and parts shortages hobbled factory output and drove the company’s U.S. sales down more than 15 per cent.

The Detroit automaker earned US$1.67 billion from April through June, well below the US$2.79 billion it made a year earlier. GM couldn’t deliver 95,000 vehicles during the quarter because it lacked parts.

Shopify slumped 15.3 per cent after the Canadian e-commerce company said it is cutting 10 per cent of its staff, or about 1,000 employees, as it reckons with an unexpected sales downturn after a pandemic-fueled explosion.

Tech heavyweights Alphabet and Microsoft report their results after the closing bell, while Meta, Apple and Amazon report later in the week.

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