Day Traders Diary

7/26/22

The major averages extended their losses Tuesday afternoon after Walmart cut its earnings forecast, sending other retail shares lower and adding to concern that consumer spending might not be strong enough to keep the U.S. out of a recession. The Dow Jones Industrial Average fell 229 points, or 0.7%, while the S&P 500 lost 1.1% or 45 points. The Nasdaq Composite declined 220 points or 1.87%

Walmart cut its quarterly and full-year profit estimates because of rising food inflation. This alarmed investors who deliberated the implications for other retail stocks. The big-box retailer said higher prices are spurring consumers to pull back on general merchandise spending, particularly in apparel.

Walmart plunged 8% Tuesday and dragged other retailers with it. Kohl's and Target dropped 7% and 5%, respectively. Apparel companies were hit hard, with Macy's down almost 6% and Nordstrom, Ross and TJX Companies lower by about 4% each. The SPDR S&P Retail ETF was lost almost 4%.

The retail turmoil bled into e-commerce stocks. Shopify tumbled 15% after the payments provider announced it's laying off about 10% of its global workforce, citing a pullback in online spending and saying it misjudged how long the pandemic-fueled e-commerce boom would last. The company will report its earnings Wednesday.

Shopify rival Amazon was also down by more than 5%. Square parent Block and PayPal, both of which operate major merchant services businesses, fell 7% and 6%, respectively.

Inflation has also changed the cost of production for companies like General Motors. Its shares fell 2.8% after the company missed earnings estimates, blaming supply chain disruptions that forced factory shutdowns and led it to ship fewer vehicles than expected. Its competitor Ford is scheduled to report results after the bell.

UPS shares slid 4.3% after the shipping giant reported declines in its international and supply chain businesses.

On the flip side, Coca-Cola shares rose 2.2% after the beverage giant topped earnings and revenue expectations, citing a sales volume recovery from the pandemic and higher pricing.

Shares of McDonald's added 3% following mixed second-quarter results, in which net sales were hurt in part by the closure of locations in Russia and Ukraine, but international growth elsewhere fueled a rise same-store sales.

Industrial stocks were earnings winners too. Shares of 3M rose 6% after beating earnings and revenue estimates and announcing plans to spin its health care business into a separate publicly traded company. General Electric posted better-than-expected results citing recovery in the aviation industry that boosted its jet engine business. Its shares gained almost 7%.

Traders are also bracing for an onslaught of mega-cap tech earnings and economic data this week, as well as the outcome of the Federal Reserve meeting, that will help Wall Street direct its expectations for the rest of the year.

On Tuesday, the Federal Reserve commenced its two-day policy meeting. Traders are widely expecting a three-quarter percentage point hike and will be looking for clues on the future interest rate path and what it could mean for equity market pricing.