Wall Street hit by Walmart warning; ASX set to fall

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

The S&P 500 was down 1.3 per cent in late trade, wiping out modest gains from a day earlier. The Dow Jones Industrial Average was down 247 points, or 0.8 per cent, at 31,744 and the Nasdaq Composite slid 2 per cent. The Australian sharemarket is set to fall, with futures at 4.57am AEST pointing to a retreat of 43 points, or 0.6 per cent, at the open. On Tuesday, the ASX closed at a six-week high.

Wall Street is sharply lower in late trade.Credit:AP

Walmart shares dropped 8.3 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 more profitable discretionary items, particularly clothing.

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 dropped 4.2 per cent, Macy’s slid 6.5 per cent and Kohl’s fell 8 per cent.

Investors have remained deeply concerned about inflation’s impact on company profits and how it will affect U.S. consumers. While Americans’ finances are relatively strong thanks to savings built up during the pandemic, those nest eggs are being spent on high gas and food prices.

The major indexes are coming off solid gains last week fuelled 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 amount. 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.

Bond yields were mixed Tuesday. The two-year Treasury yield, which tends to move with expectations for the Fed, rose to 3.04 per cent from 3.02 per cent late Monday. The 10-year yield, which influences mortgage rates, fell to 2.79 per cent from 2.82 per cent.

Technology stocks, retailers and communication companies were among the biggest drags on the benchmark S&P 500 index. Microsoft was down 3.5 per cent, Amazon slid 5.3 per cent and Facebook owner Meta Platforms dropped 4.5 per cent.

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