New York (CNN) U.S. stocks fell on Tuesday after mega retailers such as Walmart and Home Depot beat fourth-quarter earnings and forecasts.
The Dow and S&P 500 each closed with their worst day since Dec. 15 — the Dow fell about 696 points, or 2.1%, while the S&P fell 2%. The Nasdaq Composite fell 2.5%.
Consumer spending accounts for about 70% of US GDP, a broad measure of the US economy, so a recession could weigh on growth and send the US into recession.
Recent economic data has been strong. But sticky inflation and, now, warnings from bellwether retail giants like Walmart and Home Depot already have traders worried that the hawkish Fed will keep rates higher for longer.
Walmart (WMT) Earnings topped expectations, but shares of the retailer fell nearly 2% in morning trading after It lowered its outlook for next year. Walmart’s CFO said he is concerned about inflation and its impact on American consumers.
“Consumers are still under pressure, and if you look at economic indicators, balance sheets are thinning and savings rates are declining compared to prior periods,” Walmart CFO John Rainey said during the earnings call. “That’s why we’re very cautious later in the year.”
Shares of the company’s stock recovered in the afternoon, closing up about 0.6%.
Home Depot (HD) It posted record earnings for the fiscal year that ended in January, and raised both hourly wages for employees and stock dividends for its investors. But fourth-quarter numbers painted a different picture, as the company missed revenue expectations for the first time since 2019.
Even the company It lowered its outlook for next year On the call that followed earnings, executives struck a more cautious tone about the recession and inflation forecasts. Shares of Home Depot stock fell 7.1% on Tuesday.
“After a year of defying gravity, the slow economy and pressures on consumers have finally caught up with Home Depot,” said Neil Sanders, managing director of Global Data. However, the decline accelerated in December, with the volume of completed sales falling by 36.3%.”
However, the home improvement chain said it hasn’t recovered from weakness in the home sales market as a result of high mortgage rates. In fact, CFO Richard McPhail said the company could benefit from the current state of the housing market because homeowners have more incentive to fix up their current homes rather than move them.
“More than 90% of American homeowners own their homes outright or have fixed-rate mortgages under 5%,” McPhail said. “So there’s no incentive to sell and move on a high-rate mortgage. In fact, the incentive is actually to upgrade in place.”
Target, Best Buy, Macy’s and Gap will report later this month.
Investors, meanwhile, are bracing for a week full of important economic data. Wednesday will bring the minutes of the central bank’s last meeting, and the second revision of GDP will come out on Thursday. On Friday, January’s personal consumption expenditures — the central bank’s preferred measure of inflation — will be released.