[New York Stock Market] Declines on Inflation-Driven Earnings Concerns... Nasdaq Down 1.87%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange fell across the board on the 26th (local time) amid growing concerns over corporate earnings ahead of big tech earnings announcements. Retail sector weakness was particularly notable, centered around Walmart, which had previously lowered its future earnings outlook due to inflation impacts.

Amid ongoing recession fears, the International Monetary Fund (IMF) downgraded its global economic growth forecast. The IMF's assessment that the likelihood of the U.S. avoiding a recession is very low further chilled investor sentiment.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,761.54, down 228.50 points (0.71%) from the previous session. The large-cap focused S&P 500 index fell 45.79 points (1.15%) to 3,921.05, and the tech-heavy Nasdaq index dropped 220.09 points (1.87%) to close at 11,562.58.

By sector, retail stocks including Walmart showed a downward trend. Concerns that soaring inflation is beginning to impact corporate earnings spread, with Walmart’s stock closing down 7.60% from the previous session. Kohl’s and Target slid 9.12% and 3.61%, respectively. Macy’s fell 7.24%. E-commerce stocks also underperformed. Shopify plunged over 14% after news broke that it would cut 10% of its workforce. PayPal and Amazon declined 5.65% and 5.26%, respectively.

General Motors (GM), which reported earnings before the market opened, closed down 3.42% after confirming a weak performance due to supply chain disruptions. Alphabet (-2.32%) and Microsoft (-2.68%), which released earnings after the market close, also ended the regular session lower. In contrast, Coca-Cola rose 1.64% as sales recovery exceeded expectations. 3M gained nearly 5% after beating market forecasts and announcing plans to spin off its healthcare business.

Investors are closely watching the results of the Federal Open Market Committee (FOMC) regular meeting to be announced the next day, corporate earnings reports, and the second-quarter Gross Domestic Product (GDP) data to be released on the 28th.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently prices in more than a 75% chance of a 0.75 percentage point rate hike this month. This would set the U.S. benchmark interest rate in the 2.25% to 2.50% range. However, there is also nearly a 25% probability that the Federal Reserve (Fed) will take the stronger step of a full 1.0 percentage point increase.

Corporate earnings, including those of tech companies, remain a key market focus. Concerns over earnings have intensified as Walmart lowered its net profit outlook citing inflation. Microsoft and Alphabet are scheduled to report earnings after the market close on this day. Meta, Qualcomm, Apple, Amazon, and Intel are also set to release earnings this week.

Robert Caldwell, portfolio manager at UpHoldings, stated, "The most important takeaway from Walmart’s announcement is how inflation is changing people’s purchasing behavior." Stephanie Lang, Chief Investment Officer at HomeRichBerg, commented, "Overall corporate sentiment seems to be declining," adding, "There are many warnings about inflation and the U.S. dollar."

Ahead of the Fed’s rate hike decision, government bond yields fell. In the New York bond market, the yield on the U.S. 10-year Treasury slipped to around 2.8%, hitting an intraday low of 2.707%. The ongoing inversion between the 2-year and 10-year yields, often seen as a recession indicator, also persisted.

Amid continued recession concerns, the IMF downgraded its global economic growth forecast. In this revised outlook, the IMF projects the world economy to grow by 3.2% this year, down 0.4 percentage points from the 3.6% forecast released in April. This is close to half the 6.1% growth recorded last year.

The U.S. economic growth forecast for this year was also lowered to 2.3%, a significant 1.4 percentage point cut from the 3.7% forecast made just three months ago. Pierre-Olivier Gourinchas, IMF Chief Economist, warned, "The current environment suggests that the likelihood of the U.S. avoiding a recession is very low," adding that even a small shock could tip the U.S. into recession. He also pointed out that if a recession is defined as two consecutive quarters of negative growth, the U.S. may already be in recession.

This contrasts with the stance of the Biden administration and others who argue that a strong labor market means two consecutive quarters of negative growth should not be defined as a recession. The Atlanta Federal Reserve Bank’s GDPNow model estimated on the 19th that the U.S. second-quarter GDP growth rate would be -1.6% annualized.

The Conference Board’s U.S. Consumer Confidence Index for July came in at 95.7, below market expectations of 97. This is the lowest level since February 2021.

Oil prices fell amid economic concerns. On the New York Mercantile Exchange, September West Texas Intermediate (WTI) crude closed at $94.98 per barrel, down $1.72 (1.78%) from the previous session.