While you were sleeping: Wal-Mart slump adds concern

Thursday 15th October 2015

Shares of Wal-Mart plunged after the company unexpectedly predicted a decline in earnings for its fiscal 2017 year, underpinning concern that slowing global economic growth is eating into corporate profits.

In New York trading at about 2.35pm, the Dow Jones industrial average dropped 1 percent, the Standard & Poor’s 500 Index declined 0.4 percent. The Nasdaq Composite Index eked out a 0.03 percent gain.

In the Dow, slides in shares of Wal-Mart and those of Boeing, down 9.7 percent and 3.9 percent respectively, outweighed increases in shares of Chevron and those of DuPont, last up 1.5 percent and 1.4 percent respectively.

Shares of Wal-Mart sank after the company said earnings per share will drop between 6 percent and 12 percent in fiscal 2017, because of investments in wages and training. Analysts had expected an increase of 4 percent on average, according to data compiled by Bloomberg.

"The guidance is very disappointing," Edward Jones analyst Brian Yarbrough told Reuters. "What if these investments don’t lead to better sales? That’s the biggest question.”

Indeed, the company’s warning weighed on the overall outlook for US corporate earnings.

“Wal-Mart’s sizable reset of expectations has shaken the overall market,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co in Florham Park, New Jersey, told Bloomberg. “Investors are reconsidering their future forecasted growth rates for S&P earnings.”

Also disappointing were the latest US retail sales. A Commerce Department report showed retail sales rose a seasonally adjusted 0.1 percent in September, bolstering expectations the Federal Reserve might not lift rates this year.

"The softness of September's figures supports our view that the Fed probably isn't going to hike interest rates until early next year," Paul Ashworth, chief US economist at Capital Economics in Toronto, told Reuters.

Separately, reports from 12 Fed districts point to continued modest expansion in economic activity during the reporting period from mid-August through early October, according to the Beige Book report. Six districts said the expansion was “modest,” while three described growth as “moderate”.

“Consumer spending grew moderately in the latest reporting period,’’ according to the Beige Book. “Manufacturing turned in a mixed but generally weaker performance during the latest reporting period, with a number of Districts noting adverse effects from the energy sector.”

The latest data from China did little to stem concern about its economy, and the potential impact on worldwide growth.

“The problem is trying to figure out how much slowing demand from China will hurt the global economy,” Markus Wallner, an equity strategist at Commerzbank in Frankfurt, told Bloomberg. “Earnings estimates will continue to go down. Any rally towards the end of the year would come from China’s government doing more to stimulate the economy.”

In Europe, the Stoxx 600 Index finished the session with a 0.7 percent slide from the previous close. The UK’s FTSE 100 Index fell 1.2 percent, as did Germany’s DAX Index, while France’s CAC 40 Index retreated 0.7 percent.

BusinessDesk.co.nz

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