Dow drops nearly 700 points as retail earnings disappoint

New York (CNN) U.S. stocks plunged on Tuesday after fourth-quarter earnings and forecasts from mega-retailers like Walmart and Home Depot raised concerns about the strength of the U.S. consumer.

The Dow Jones and S&P 500 each closed with their worst day since Dec. 15 – the Dow Jones fell about 696 points, or 2.1%, while the S&P fell 2%. The Nasdaq Composite closed down 2.5%.

Consumer spending accounts for about 70% of US gross domestic product, the broadest measure of the US economy. A slowdown could therefore weigh on growth and even plunge the United States into a recession.

Recent economic data has been strong. But sticky inflation and, now, warnings from retail companies like Walmart and Home Depot have traders worried that the already hawkish Fed will keep rates higher for longer.

walmart (WMT) beat revenue expectations, but shares fell nearly 2% in morning trading after the retailer lowered its outlook for the year ahead. Walmart’s chief financial officer said he was worried about inflation and its impact on the American consumer.

“The consumer is still very much under pressure, and if you look at the economic indicators, balance sheets are shrinking and savings rates are falling compared to previous periods,” Walmart Chief Financial Officer John Rainey said during the briefing. conference call. “And that’s why we’re taking a pretty cautious outlook for the rest of the year.”

Shares of the company rallied in the early afternoon, closing around 0.6%.

Home deposit (HD) announced record profits for the fiscal year that ended in January and increased both its hourly wages for employees and the stock dividend for its investors. But the fourth quarter numbers 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 post-earnings call. Home Depot shares fell 7.1% on Tuesday.

“After a year of defying gravity, the slowing economy and pressures on consumers have finally caught up with Home Depot,” said Neil Saunders, chief executive of GlobalData. “For most of 2022, the number of existing homes sold has been declining. However, the pace of the decline accelerated in December as the volume of completed sales fell 36.3 percent.”

Still, the home improvement chain said it was not hurt by the weakness in the home sales market resulting from rising mortgage rates. In fact, Chief Financial Officer Richard McPhail said the company could benefit from the current state of the housing market, as homeowners have more incentive to repair their current home rather than move.

“Over 90% of US homeowners either own their homes or have fixed rate mortgages below 5%,” McPhail said. “And so that incentive to sell and move to a higher rate mortgage just isn’t there. And in fact, the incentive is really there to improve in place.”

Target, Best Buy, Macy’s and Gap will report later this month.

Investors, meanwhile, are gearing up for a week full of important economic data. Wednesday will bring the minutes from the last Fed meeting, and a second GDP revision will be released on Thursday. On Friday, January’s personal consumption expenditures, the Fed’s favorite inflation indicator, will be released.

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