Stocks Sink after Walmart Sparks Concern About U.S. Consumer Spending

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.96%. 

U.S. stock indexes on Tuesday closed moderately lower on weaker-than-expected U.S. economic data and a weaker outlook from the world’s largest retailer.  Walmart tumbled more than -7% to lead retailer stocks lower after it cut its profit outlook.  Also, United Parcel Service closed down more than -3% after it said package deliveries worldwide fell more than expected.

A selloff in cybersecurity stocks Tuesday led technology stocks lower.  Stock indexes maintained moderate losses after the International Monetary Fund cut its global 2022 GDP forecast.

On the positive side for stocks, McDonald’s rallied more than +2% after it reported stronger-than-expected quarterly sales.  Also, General Electric jumped +4% Tuesday after reporting stronger-than-expected Q2 revenue.  In addition, a decline in T-note yields is supportive for stocks after the 10-year T-note yield fell to a 2-month low Tuesday at 2.705%. 

The Conference Board’s U.S. July consumer confidence index fell -2.7 to a 17-month low of 95.7, weaker than expectations of 97.0.

U.S. June new home sales fell -8.1% m/m to a 2-year low of 590,000, weaker than expectations of 655,000.

The International Monetary Fund (IMF) cut its global 2022 GDP forecast to 3.2%, down from a 3.6% estimate in April.

Today’s stock movers…

Weakness in retailer stocks Tuesday weighed on the overall market.  Walmart (WMT) closed down more than -7% to lead losers in the Dow Jones Industrials after it said it sees Q2 adjusted EPS down -8% to -9% and sees full-year adjusted EPS down about -11% to 13%. Other retailers also declined, with Ross Stores (ROST) and Best Buy (BBY) closing down by more than -5% and TJX (TJX) closing down more than -4%.  Etsy (ETSY), Target (TGT), and Costco Wholesale (COST) closed down by more than -3%.

Weakness in cybersecurity stocks Tuesday led losers in technology stocks.  Zscaler (ZS) closed down more than -9% to lead losers in the Nasdaq 100.  Also, Okta (OKTA) close down by more than -8%.  In addition, Fortinet (FTNT) closed down more than -7% to lead losers in the S&P 500.  Finally, Palo Alto Networks (PANW) and Crowdstrike Holdings (CRWD) closed down by more than -7%.

Packaging Corp (PKG) closed down more than -4% Tuesday after CEO Kowlzan warned that “broad-based inflation and aggressive interest rate increases” are contributing to softer growth. 

PulteGroup (PHM) closed down more than -4% Tuesday after reporting Q2 net new orders of 6,418, below the consensus of 7,493. 

United Parcel Service (UPS) closed down more than -3% Tuesday after reporting Q2 average daily package volume fell more than -4% in the U.S. and more than -13% in its international business.   

3M Co (MMM) closed up more than +4% Tuesday to lead gainers in the S&P 500 and Dow Jones Industrials after announcing that it will spin off its healthcare business.

Fiserv (FISV) closed up more than +4% Tuesday to lead gainers in the Nasdaq 100 after reporting Q2 adjusted EPS of $1.56, better than the consensus of $1.55 and raising its full-year adjusted EPS estimate to $6.45-$6.55 from a prior estimate of $6.40-$6.55.

General Electric (GE) closed up more than +4% Tuesday after reporting Q2 revenue of $18.65 billion, stronger than the consensus of $17.70 billion. 

Archer-Daniels-Midland (ADM) closed up more than +4% Tuesday after reporting Q2 adjusted EPS of $2.15, well above the consensus of $1.72.

McDonald’s (MCD) closed up more than +2% Tuesday after reporting Q2 comparable same-store sales rose +9.7%, better than the consensus of +7.5%.

Across the markets…

Sep 10-year T-notes (ZNU22) on Tuesday closed up +6.5 ticks, and the 10-year T-note yield fell -1.6 bp to 2.794%.  Sep T-notes Tuesday rallied to a 2-1/2 week high, and the 10-year T-note yield dropped to a 2-month low of 2.705%.  Positive carry-over from Tuesday’s rally in 10-year German bunds to a 2-month supported T-note prices.  Also, Tuesday’s weaker than expected U.S. consumer confidence and new home sales reports were bullish for T-note prices.  In addition, Tuesday’s slide in stocks boosted the safe-haven demand for T-notes. 

T-notes fell back from their best levels Tuesday on supply pressures as the Treasury actioned $46 billion of 5-year T-notes as part of this week’s $129 billion auction package of T-notes.  Also, long liquidation weighed on T-note prices ahead of the conclusion of the Tue/Wed FOMC meeting when the Fed is expected to raise its federal funds target range by 75 bp.  

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