Shares in consumer discretionary and staples stocks were trading in opposite directions on Tuesday as encouraging retail sales data was countered by disappointing earnings and financial targets from Walmart, which blamed high inflation.
Walmart shares closed down 11.4 percent after it reported a 25 percent quarterly earnings decline and cut its full-year profit outlook due to rising fuel and labor costs, while shoppers, squeezed by decades-high inflation on basic needs like food, reined in purchases of nonessential items.
That put Walmart shares on track for its biggest daily percentage drop since an 11.79 percent tumble on Oct 16, 1987, the last trading session before the “Black Monday” stock market crash in which the Dow Jones Industrial Average plunged more than 22 percent.
Dragged by Walmart, shares in Target Corp finished down over 1 percent ahead of its earnings report due Wednesday morning. Dollar General and Dollar Tree both fell 3 percent.
But while the S&P 500 consumer staples sector declined 1 percent, the benchmark’s consumer discretionary sector gained 2.7 percent as some clothing, travel and automaker shares gained ground.
Data showed US retail sales rose strongly in April as consumers spent more on motor vehicles due to supply improvements. They also spent more at restaurants, boosting the economy at the start of this quarter.
The contrast, according to some strategists, is because soaring inflation has a bigger impact on lower-income customers who shop at Walmart or dollar stores than consumers who can still buy pricier items from companies including Under Armour, up 4 percent, Ralph Lauren, up 3.8 percent and PVH Corp up 3.4 percent. – Reuters
