New York (CNN) US stocks fell Tuesday afternoon after fourth-quarter gains and forecasts from mega retailers like Walmart and Home Depot raised concerns about US consumer strength.
The Dow Jones fell about 650 points, or 1.9%, on Tuesday afternoon. The S&P 500 fell 1.8%, falling briefly below the 4,000 mark for the first time since Jan. 25. The Nasdaq Composite was down 2.2%.
Consumer spending accounts for about 70% of US gross domestic product, the broadest measure of the US economy, so a slowdown could weigh on growth and even push the United States into recession.
Recent economic data has been strong. But persistent inflation and now warnings from smaller retail companies like Walmart and Home Depot have traders worried that the already aggressive Fed will keep rates high for even longer.
walmart (WMT) beat sales expectations, but shares of the stock fell nearly 2% in morning trading after the retailer lowered its outlook for the year ahead. Walmart’s CFO said he was concerned about inflation and its impact on US consumers.
“Consumers are still under a lot of pressure, and if you look at economic indicators, balance sheets are getting thinner and savings rates are down from previous periods,” Walmart CFO John Rainey said during the earnings call. “And that’s why we’re looking pretty cautiously at the rest of the year.”
Shares of the stock had recovered by early afternoon and were up about 0.5%.
DIY store (HD) reported record profits for the fiscal year ending January, and increased both hourly pay and stock dividend. But the fourth quarter painted a different picture as the company missed revenue expectations for the first time since 2019, before the pandemic.
The company also lowered its outlook for the year ahead as executives took a more cautious tone about recession and inflation forecasts in the call that followed earnings.
Shares of the stock fell 6.3% on Tuesday afternoon.
“After a year of defying gravity, the slowing economy and consumer pressures have finally caught up with Home Depot,” said Neil Saunders, GlobalData’s general manager. “For most of 2022, the number of existing homes sold has been on a decline. However, the pace of the decline accelerated in December, with the volume of completed sales falling by a sharp 36.3%.”
Still, the home improvement chain said it won’t take a hit from the weakness in the housing market resulting from higher mortgage rates. CFO Richard McPhail even said the company could benefit from the current state of the housing market, as homeowners are more likely to refurbish their current homes than move.
“More than 90% of homeowners in the U.S. either own their homes outright or have fixed-rate mortgages below 5%,” said McPhail. “And so that incentive to sell and move to a higher-interest mortgage is just not there. And in fact, the incentive is really there to improve.”
Target, Best Buy, Macy’s and Gap will report later this month.
Investors are now preparing for a week full of important economic data. The minutes of the Fed’s last meeting come on Wednesday, a second revision of GDP will be released on Thursday, and Friday will bring January’s personal consumption expenditures — the Fed’s favorite inflation gauge.
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