Retail Panic
In the worst of times, blue chip companies can always tell us what’s going on. These stocks don’t tend to overreact as shown by the performance of the Dow, and they represent important areas of the economy like energy and financials. Being the backbone, if something goes wrong for them, it could spell negative signs for the market and even the economy.
Unfortunately, that event might have happened on Monday. Walmart, one of the kingpins of the retail industry and loved blue chip stock, is set to report second quarter earnings in August. Companies always adjust their outlooks in case the current expectations are too high or too low, and it’s the former in Walmart’s case. Walmart’s warning threw a boulder at what has been one of the positive points about the economy: consumer spending. This economic factor has continued to stay strong through the era of inflation, but Walmart says otherwise. In their update, they said that due to rising food and gas prices, consumers are stepping back a bit. This has caused the company to have shelves full of unsold goods, which is a point we discussed in May. All of this has led to Walmart slashing their prices to the levels of Sam’s Club, their wholesale division, which is expected to result in lower profits not only for this upcoming quarter but the rest of the year. Sales are expected to rise, but this will be coming from the less profitable items instead of areas like apparel that have good margins. Inventory levels have continued to increase, and Walmart now expects operating income to decline by 10 to 12 percent for the fiscal year ending in January. This not only sent Walmart shares down by 10 percent, but other retailers like Amazon and Target fell after hours too, and this is another sign pointing to a possible recession.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
