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Walmart’s numbers were impressive, but its shares fell by almost 2%

Miguel A. Rodriguez
Miguel A. Rodriguez
21 August 2023

Walmart's earnings report exceeded expectations, while the US economy's robustness has led to a downward trend in shares. The Federal Reserve could maintain high-interest rates for a considerable period, and stock markets are showing signs of weakness. 

Given the robust American consumer market, Walmart also increased its sales projections for the year's end. However, Walmart's shares reacted negatively and fell by almost 2% during the session. In some ways, this is a typical buy-the-rumor and sell-the-news reaction, given the high level of overbuying the stock. 
However, this downward trend was not limited to Walmart; the North American indices also had a downturn that day, adding to their overall losses for August. 

Ironically, one critical element pressuring stock markets lower is the robustness of the US economy.

Walmart Daily Chart, 18.08.2023


What about interest rates?

Because of the soundness of the economy (labor market, consumption, GDP, etc.), projections for interest rates have shifted from the assumptions made months ago when a recession or at least a significant slowdown was anticipated.  

Regardless of whether a decision to raise rates is taken at their upcoming meeting, the Federal Reserve will have to maintain high-interest rates for a considerable amount of time due to the economy's continued strong performance. 

Since the inverted interest rate curve discounted rate cuts for the end of the year or the beginning of the next, it is now adjusting to this new scenario with sharp falls in bond prices or very significant rises in their yields.


As financing gets expensive, the stock market responds.

The 10-year bond hit 4.30% yesterday, its highest level since October 2022. We would have to go back to 2008 above this level. Since that time, the yield on this bond has decreased.  

Due to the negative impact of more expensive financing circumstances for businesses, especially technology companies, which are the most interest rate sensitive, the stock markets are already exhibiting signs of weakness due to the high market interest rates. 

This new scenario was confirmed on Wednesday night after the contents of the Fed's most recent meeting's minutes came to light. The majority of FOMC members acknowledged the need for higher rates to combat inflation, which, while improving, was still at extremely high levels.

Sources: Bloomberg, Reuters

Key Takeaways

•    Walmart increased its sales projections for the year's end.
•    Walmart's shares reacted negatively and fell by almost 2%.
•    One of the key elements that are pressuring stock markets lower is the robustness of the US economy.
•    Stock markets respond to the increase in financing cost. 

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Interest Rates 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.