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Is the Economy Slowing?
Major Index Performances (as of Close Thursday):
- S&P 500: The benchmark index is even.
- Dow Jones Industrial Average: The Dow decreased by 0.8%
- Nasdaq Composite: The index is declined by 0.3%
- Gold: The Precious metal is up 1.89%, reaching an all-time high
Walmart’s Earnings Miss Expectations
Walmart’s earnings report offered insight on consumer trends and economic conditions. The company projected lower-than-expected profits through 2025, with adjusted earnings projected between $2.50 and $2.60 per share. Net sales growth is anticipated to be between 3% to 4%, down from 5% in the previous fiscal year. Perhaps this will be a non-issue, but the retail giant’s guidance does not factor impact from potential tariffs.
The first major retailer to report post-holiday earnings, Walmart often sets the tone for the retail sector. While the company typically provides conservative guidance, expectations were high following a 77% increase in its stock over the past year. Now might be a good time to make a point. Walmart’s stock is up 77%, but earnings are struggling to support this unusually high price. Walmart is considered by most to be a key economic indicator, and that was evident in Thursday’s market sell-off after its announcement.
Despite its reputation for low prices, Walmart has experienced increased foot traffic from shoppers with annual incomes of $100,000 or more. This ever-broadening customer base provides a unique perspective on overall consumer spending trends.
Interest Rates and Market Trends
The 10-year Treasury yield has fluctuated since the first rate cut of 2024, peaking at 4.79% in January before retreating to its current level of 4.50%. As yields remain competitive, they continue to offer investors alternative options. The question on everyone’s mind is where will yields head next, particularly the 10-year. That’s because most consumer-based lending is affected by the 10-year yield. More specifically, if mortgage rates are to move lower, yields on the 10-year will need to start cooperating.
Weekly Economic Data
- Initial Jobless Claims: 219,000 (higher than the 215,000 estimate)
- Continuing Jobless Claims: In line with expectations
- Housing Starts: 1,366,000 (below the expected 1,390,000)
- Building Permits: Surprised to the upside
Although this week was shortened due to President’s Day, volatility remained high. There was notable rotation out of financials and technology, while certain pharmaceutical stocks saw strong gains. Value stocks have gained favor amid ongoing global uncertainty and inflation concerns. Meanwhile, gold continues to reach record highs, serving as a popular hedge. Fidelity’s money market fund (FDRXX) currently offers a 4.04% interest rate, providing a competitive return on cash holdings.
With the recent shift out of technology, the S&P 500 could face pressure as its top 10 stocks account for an eye-popping 35% of the index’s weighting. This is not a usual condition for the S&P 500. History tells us that similar conditions have only happened a handful of times. During periods of uncertainty and higher interest rates, diversification and broad holdings may help in managing risk. If you know someone who isn’t sure, don’t forget that our firm provides our Second Opinion Solutions to identify where improvements can be made in an investor’s portfolio.
Enjoy your weekend,
Your OmniStar Investment Team
