Walmart to shed light on U.S. consumer health as inflation bites, tariffs swirl

Globe and Mail

14-02-2025

Walmart's (WMT-N) quarterly report in the coming week will give investors fresh insight into the health of U.S. consumers, who are facing stronger inflation and uncertainty over whether President Donald Trump's tariffs will push up prices.
The benchmark S&P 500 stock index was up about 1% for the week, with stocks showing resilience despite a hot report on consumer prices that led investors to push back expectations of further interest rate cuts this year.
Wall Street closely watches trends in consumer spending, which accounts for more than two-thirds of U.S. economic activity. The extent to which inflation is weighing on shopping behavior could become more evident with Thursday's earnings report from retailer Walmart.
'Walmart is sort of a canary in the coal mine as far as consumer spending and consumer health is concerned,' said Robert Pavlik, senior portfolio manager at Dakota Wealth.
Walmart's report could show 'how much of higher food prices and higher gasoline or energy prices is digging into the discretionary spending of consumers,' Pavlik said.
The S&P 500 has climbed more than 3% this year, with broad gains among sectors. Investors have digested a flurry of policy announcements from the Trump administration, including on tariffs and federal government cost cuts, and more recently, discouraging data on inflation.
Stocks sold off modestly on Wednesday after a report showed consumer prices in January jumped by the most in nearly 1-1/2 years, with Americans facing higher costs for a range of goods and services.
The CPI data came on the heels of a survey that revealed U.S. consumer sentiment sank in February to a seven-month low as inflation expectations soared. Households feared it may be too late to avoid the negative effects from Trump's threatened tariffs, according to the survey's director.
Company executives are grappling with the potential fallout from tariffs. Since the beginning of the year, nearly 430 companies in the S&P 1500 have either mentioned tariffs or responded to a question about tariffs on earnings calls or at investor events, according to LSEG data.
Walmart, as the most important consumer company in the country along with Amazon (AMZN-Q), will be closely watched for its commentary, said Matt Maley, chief market strategist at Miller Tabak.
'It's not just what their numbers are and their guidance, but what they say about the consumer,' Maley said.
Walmart's comments could help address whether people are 'so worried about tariffs that they're starting to question some of their spending,' Maley said.
A Walmart spokesperson declined to comment, saying the company was in a quiet period ahead of its earnings report.
Walmart's report will be followed by results in the next few weeks from a range of consumer companies, including home improvement company Home Depot (HD-N), off-price retailer TJX Cos (TJX-N) and Target (TGT-N), that will also wind down fourth-quarter reporting season for corporate America.
With nearly three-fourths of index companies having reported, S&P 500 earnings are on track to have climbed 15.2% from the year-earlier period, its strongest pace in three years, according to LSEG IBES data.
Still, expectations for S&P 500 profits in 2025 have moderated since the start of the year, which some investors said has undercut optimism from the fourth-quarter reports.
The potential impact from import tariffs - which are expected to weigh on profits and drive up inflation - is poised to remain prominent on Wall Street's radar in the coming week. Trump has announced a 10% tariff on China and a broad duty on steel and aluminum imports, while delaying tariffs on Mexico and Canada.
'No one's quite sure what's a negotiation and what's the policy,' said Rick Meckler, partner at Cherry Lane Investments. Hedge funds and other large investors, he said, 'don't want to be caught short only to see a reversal in policy that causes the market to come right back.'
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