U.S. stocks slip after Walmart profit warning, gloomy IMF economic warning

What’s driving markets

Walmart WMT late Monday cut its profit outlook, saying inflation on food has caused it to conduct more markdowns in apparel. Shares fell 8.6% to lead Dow decliners, while other retail stocks also sunk. The SPDR S&P Retail ETF XRT fell 4%.

“Retail is under pressure as Walmart sent elevated concerns about the health of the consumer by slashing their outlook. I view this as more of a retail-specific issue, rather than a major consumer concern,” said Lindsey Bell, chief markets and money strategist at Ally, in an email.

“This is another reminder how shifting dynamics in consumer preferences and supply chain issues are impacting retailers in an outsized way,” she said.

Adding to the gloom over the outlook, the International Monetary Fund warned Tuesday that the global economy is facing the possibility of a severe downturn that would rank in the bottom 10% of outcomes since 1970.

In an update to its closely-followed World Economic Outlook report, the IMF trimmed its baseline forecast for global economic growth to 3.2% in 2022, 0.4 percentage point lower than in the April report. In 2023, the IMF projected global output at just 2.9%.

For the U.S., the IMF is projecting 2.3% growth this year, down 1.4 percentage points from the April forecast. For 2023, the IMF is now projecting a slim 1% growth rate, down 1.3 percentage points from April.

Read: Analysts on Walmart’s profit warning: Consumers are buckling under inflation pressure and draining their COVID reserves

Investors were assessing a massive slate of earnings, including General Motors Co. GM, and Dow components McDonald’s Corp. MCD and Coca-Cola Co. KO, and after the close, tech titans Alphabet Inc. GOOGL and another Dow component, Microsoft Corp. MSFT.

“Since expectations were set so low going into this earnings season, the underlying theme so far has been that the situation is not quite as dire as many feared. If the tech juggernauts fit this profile, the market could breathe a collective sigh of relief,” said Marios Hadjikyriacos, senior investment analyst at XM, in emailed comments.

See: Big Tech earnings are about to determine the direction of the market

Meanwhile, the Federal Reserve starts its two-day interest-rate-setting meeting Tuesday, which is expected to conclude with a 75 basis point rate increase as the central bank continues to tighten aggressively in its effort to curb inflation.

In U.S. economic data Tuesday, the S&P CoreLogic Case-Shiller 20-city index decelerated to a 20.5% year-over-year gain in May down from 21.2% in the previous month. A separate report from the Federal Housing Finance Agency showed a 1.4% monthly gain. And over the last year, the FHFA index was up 18.3%

The Conference Board said its index of consumer confidence fell to 95.7 in July from a revised 98.4 in the previous month.

U.S. new home sales plunged 8.1% to a seasonally-adjusted rate of 590,000 in June, from a revised 642,000 a month earlier, the Commerce Department reported Tuesday.

Companies in focus

• Shares of General Motors GM fell 3% after the car maker’s second-quarter profit fell short of estimates, offsetting a revenue beat.
• Shares of United Parcel Service UPS lost 3% Tuesday, despite the package delivery giant reporting second-quarter profit and revenue that rose above expectations and boosting its stock buyback plan by about 50%.
• 3M Co. MMM said it would spin off its healthcare business to create two public companies to pursue their growth plans. The new 3M will be a global material science company with a range of industrial and consumer markets, while the healthcare company will focus on wound care, healthcare IT, oral care and biopharma filtration. Shares of the Dow component rose 5.8%.
• McDonald’s MCD shares gained 2% after the fast-food giant topped Wall Street earnings expectations but fell short on revenue.
• Coca-Cola shared rose 1.8% after beating expectations for adjusted profit and revenue despite cost and currency headwinds.
• Shares of General Electric Co. GE rose 5.1% after the industrial conglomerate, which plans to split into three independent companies, topped second-quarter profit and revenue expectations and delivered surprise positive free cash flow, while continuing to provide a somewhat downbeat full-year outlook.
• Shopify Inc. SHOP is reportedly planning to lay off around 10% of its workforce as it admits that e-commerce growth hasn’t continued as robustly as expected, according to The Wall Street Journal, which cited a memo to staffers. Shares tumbled nearly 17%.
• Kleenex maker Kimberly-Clark Corp. KMB reported earnings and revenue that topped estimates. Shares were down 1.5%.

Other assets

• The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 7 basis points to 2.74%. Yields and debt prices move opposite each other.
• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.5%.
• The U.S. oil benchmark CL rose 1.1% to trade near $97.75 a barrel, while gold futures GC00 were off 0.1% near $1,718 an ounce.
• The Stoxx Europe 600 XX:SXXP and London’s FTSE 100 UK:UKX were each off 0.1%.
• The Shanghai Composite CN:SHCOMP ended 0.8% lower, while the Hang Seng Index HK:HSI jumped 1.7% in Hong Kong and Japan’s Nikkei 225 JP:NIK edged down 0.2%.