Dow Falls 200 Points After Disappointing Walmart Earnings And Worse-Than-Feared Jobless Data

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Topline

Stocks are falling for a second day in a row after worse-than-expected unemployment data and a disappointing earnings report from the nation’s largest retailer stoked investor fears that the economic recovery could be lagging more than expected.

Key Facts

Shortly after the market opened, the Dow Jones industrial average was down 197 points, or 0.6%, while the S&P 500 slipped 0.7%, and the tech-heavy Nasdaq–which has underperformed in recent days–fell 1%.

Heading up losses in both the Dow and S&P, shares of Walmart fell nearly 6% after a fourth-quarter earnings report that showed stronger-than-expected sales growth in the U.S. of nearly 9% (boosted by stimulus payments, per management), but earnings of $1.39 per share that fell short of Wall Street estimates averaging about $1.50 per share. 

The company said it will spend roughly $14 billion in capital investments in 2022–nearly 40% more than it’s expected to spend this year–in part to boost the firm’s digital footprint; “if this were Amazon, investors would love the increased spending, but this is Walmart,” Vital Knowledge Media Founder Adam Crisafulli said of investors reacting negatively to the report.

Meanwhile, shares of Labcorp are climbing 4% after the diagnostics company announced a new Covid-19 antigen test, while energy companies Mosaic, HollyFrontier and Freeport-McMoRan all outperform the broader market also, with gains near 2%.

New unemployment claims totaled 861,000 last week–up nearly 10% from the previous week’s 793,000 claims and much worse than the 773,000 jobless claims economists were expecting.

Domestic stocks were underperforming much of the global market, with Japan’s Nikkei 225 ticking down just 0.2% Thursday, while Shanghai’s SE Composite jumped 0.6%, and Germany’s DAX Index was virtually flat.

Crucial Quote 

“Investors are beginning to rotate within equities, shunning high-multiple stocks and buying value and inflation hedges, like mining and energy,” Crisafulli said Thursday. “The U.S. equity debate remains exactly the same as before and can be encapsulated in a single question: At what 10-year Treasury yield level will stocks really start to get worried?” Crisafulli said of recently spiking Treasurys, noting that higher yields can erode valuation multiples.

Tangent

The Nasdaq-100, composed of the 100 largest non-financial stocks in the tech-heavy Nasdaq, is down 1% this week, while the S&P 500 is virtually flat.

Surprising Fact

Roughly 85% of fourth-quarter results are in for S&P companies, and “corporate earnings have defied the shrinking economy,” Bank of America analysts said in a note to clients Thursday. Despite the pandemic’s toll on the economy, fourth-quarter earnings per share have ticked up 1.3% year over year, compared to a 2.5% year-over-year drop in annual gross domestic product. On top of that, earnings have outperformed expectations by a margin of 15%, on average.

What To Watch For

At 12 p.m. Eastern, the House Financial Services Committee will hold a hearing to discuss the recent market volatility sparked by so-called meme stocks like GameStop. Goldman Sachs says topics likely to be explored will include the gamification of retail investing, the capitalization of broker-dealers and the mechanics of short-covering. Executives of Reddit, online brokerage Robinhood and market-maker Citadel Securities are all set to testify.

Further Reading

New Unemployment Claims Hit 861,000 Last Week–Worse Than Economists Expected (Forbes)

Dow Falls 100 Points, Investor ‘Nerves Creeping In’ As Treasury Yields Spike (Forbes)

Is The Stock Market About To Crash? (Forbes)