Disappointing forward guidance from Walmart weighed on the stock market today. The company's shares fell 6.5% today despite a very strong Q4, mostly because the company's 2025 earnings expectations fell short of analysts' estimates.
Disappointing forward guidance from Walmart weighed on the stock market today. The company's shares fell 6.5% today despite a very strong Q4, mostly because the company's 2025 earnings expectations fell short of analysts' estimates.
Part of the worry came from comments on the possible negative impact of tariffs. Management’s guidance also reflected negative currency impacts and a hit from acquisitions. On balance, the results and comments weren't too troublesome, in our opinion. What may have been a bigger issue is that Walmart stock was trading at roughly 38 times forward earnings, so any chance that earnings growth could slow sparked a downward rerating of the valuation multiple (chart).
Nevertheless, stocks prices of Financials such as JPMorgan and Goldman Sachs fell around 4% today on worries about the consumer. Alarmists have been warning about rising consumer-credit delinquencies (chart). For now, we aren't alarmed.
The economic data released today corroborated our overall optimistic outlook and should benefit retailers like Walmart over the rest of the year. Here's more:
(1) Regional manufacturing. February's Philly Fed regional M-PMI fell slightly from January's very strong reading but remained in expansion with rising new orders and employment. Along with the solid NY Fed M-PMI, the two regional Fed surveys point to February's national ISM M-PMI registering its second straight monthly reading above 50.0 (chart).
However, prices paid and received by Philly manufacturers surged, as they did for New York businesses (chart). Trump tariff turmoil may be evident in coming inflation prints.
(2) Unemployment claims. Both initial and continuing unemployment claims remained subdued in mid- and early February, respectively. Despite some layoffs of federal contractors, we continue to see a strong economic environment and solid hiring in the private sector keeping the unemployment rate low (chart).
Much of the increase in government payrolls since the pandemic has been concentrated in state and local governments (chart). So shrinking federal employment is likely to have less of an impact on total government employment than headlines suggest. Also, federal resignations and layoffs are likely to lead to some labor market churn, including more hiring. Additionally, the employees who leave federal jobs may end up more productive and with higher wages in the private sector.
(3) Yen appreciation. The yen has strengthened to below 150 per dollar. Strong economic data in Japan has driven Japanese government bond yields higher, aiding the yen even as the dollar broadly strengthens (chart). We are not expecting a carry-trade unwind 2.0, reprising what was seen last summer, but we are monitoring the situation. We believe the Bank of Japan is keen to avoid such volatility and would likely signal a pause of interest-rate hikes at any signs of trouble.
