The Dow Jones Industrial Average was down 0.38%, the S&P 500 slid 0.33% and the Nasdaq fell 0.44%.
Walmart, the world’s largest retailer, reported a dip in quarterly earnings, though adjusted profit came in higher than expected. Earnings declined to 96 cents a share over the second quarter compared with $1.21 a share in the year-ago quarter. Adjusted earnings of $1.08 a share topped consensus by a penny.
Revenue increased 2.1% to $123.4 billion and exceeded estimates of $122.8 billion. Same-store sales climbed 1.8%. Sales at its membership-only Sam’s Club stores rose by 2.3%, while traffic ticked up 2.1%.
Disappointing guidance weighed on Walmart’s shares in premarket trading. The retailer anticipates third-quarter earnings between 90 cents and 98 cents a share, and full-year earnings of $4.18 to $4.28 a share. Analysts had expected third-quarter profit of 97 cents a share and full-year profit of $4.36 a share.
Walmart shares, a Dow component, declined by more than 2%.
Alibaba offset some of Walmart’s losses after better-than-expected earnings boosted its premarket performance. Per-share earnings increased 92 cents to 83 cents a share over its quarter ended June 30. Adjusted earnings of $1.17 a share topped estimates of 93 cents.
Sales surged 56% to $7.4 billion, higher than a targeted $7.12 billion. Revenue from the company’s core commerce increased 58% year-over-year to $6.347 billion. Cloud computing revenue increased 96%. CEO Daniel Zhang said “technology is driving significant growth across our business and strengthening our position beyond core commerce.”
Shares of the Chinese e-commerce company were up more than 3%.
L Brands Inc. (LB) was the worst performer on the S&P 500 following a soft outlook. Third-quarter profit guidance of 25 cents to 30 cents a share came in below analysts’ target of 36 cents. For the full year, the Victoria’s Secret parent targets profit of $3 to $3.20 a share, under consensus of $3.22. L Brands had preannounced its second-quarter results.
Cisco Systems Inc. (CSCO) fell 4% on Thursday morning after posting a decline in quarterly profit and sales.
Here’s why the market reacted negatively to Walmart’s quarter.
Adjusted earnings dropped 3%, while revenue declined 4%. Non-GAAP profit of 61 cents a share was in-line with estimates. Revenue of $12.13 billion came in $60 million higher than estimated, but has fallen for seven straight quarters in a row.
By segment, Cisco’s core switching and routing businesses saw another quarterly drop, falling 9% year-over-year. Data center and collaboration fell 4% and 2%, respectively.
Cisco expects further drops in sales over its first quarter. The networking tech developer anticipates a 1% to 3% decline in first-quarter revenue and earnings of 59 cents to 61 cents a share, wrapping estimates of 60 cents.
Around 92% of S&P 500 companies have reported earnings so far this season. Of those, 73.7% have exceeded earnings estimates, above the historical average of 64%, according to Thomson Reuters data. More than 68% have topped revenue consensus, also above an average of 59%.
“Strong earnings continue to provide support for the stock market at elevated valuations, with the potential for more support from a reduced corporate tax rate next spring,” Burt White, chief investment officer for LPL Financial, said in a note. “We believe near double-digit earnings growth is achievable this year (consensus expectations are roughly +10%) and potentially in 2018 as well.”
Investors continued to digest signs the Federal Reserve could begin to unwind its balance sheet as soon as its next meeting, a move that would have tightening effects similar to a rate hike.
In minutes from its July meeting out on Wednesday, Aug. 16, members of the Fed’s monetary policy committee said they wanted to wait for an “upcoming” meeting to begin debt reduction. Several members were ready to announce a start date at the July meeting, indicating a willingness to take the first step soon, possibly in September as many economists anticipate.
The Fed had previously said it would implement changes to its balance sheet “relatively soon,” provided the economy expands as expected. The central bank currently holds $4.5 trillion in Treasuries and mortgage-related bonds, purchased to buoy U.S. growth after the financial crisis.
Fed members also discussed concerns over inflation trends. Members said they could “afford to be patient … in deciding when to increase the federal funds rate further” and that it was imperative to wait until “incoming information confirmed that the recent low readings on inflation were not likely to persist.”
The central bank left the federal funds rate at 1% to 1.25% at that meeting, as widely expected. Another rate hike is not anticipated until at least December. Even then, chances of a year-end increase are only at 49.2%, according to CME Group fed funds futures.
“We know the Fed has a rate destination in mind, and a stated goal of three this year, but what remains to be seen is if they deliver this year or next,” said Mike Loewengart, vice president of investment strategy at E*TRADE. “Many will be keeping a watchful eye on inflation. If we see improvement on that front, there’s a good chance we’ll see more action in 2017.”
Jobless claims in the past week fell at a faster-than-expected pace. The number of new claims for unemployment benefits declined by 12,000 to 232,000, according to the Labor Department. Analysts expected claims to drop to 240,000 after a reading of 244,000 in the previous week.
Business expectations in the Philadelphia region receded in August, though at a slower pace than anticipated. The August Philadelphia Fed Business Outlook dipped to 18.9 from 19.5 in July. Analysts expected a reading of 18.
Industrial production came in weaker than anticipated in July. The Fed’s measure increased 0.2% to a reading of 105.5 in July, slowing from a 0.4% pace in June. Analysts anticipated a 0.3% increase.
Updated from 10:33 a.m. ET, Thursday, Aug. 17.
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