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“A good thing never ends.” – Mick Jagger

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We said it was going to be a busy week yesterday, and that didn’t even include the surprise earnings warning from Walmart (WMT) after the close.  While WMT shares are down sharply, it’s surprisingly having little impact on the broader markets where futures are only modestly lower heading into the open.  Where they finish the day will be another story, and then after the close, we’ll hear from Alphabet (GOOGL) and Microsoft (MSFT) which are likely to have a bigger impact on how markets trade tomorrow.

Outside of equities, longer-term Treasuries are rallying this morning and sending the 10-year yield down to 2.74% and flattening the 10y3m portion of the yield curve down to just 26 basis points (bps) and closer to inverted levels, but don’t worry “it’s different this time”.  As mentioned above, WMT’s warning was somewhat out of left field, and the timing was interesting as it came right before this week’s Fed meeting.  It will be interesting to see what, if any, impact the WMT news has on the thoughts of FOMC members.

Today’s Morning Lineup discusses earnings news out of Europe and the Americas, the geopolitical impacts of Pelosi’s planned visit to Taiwan, economic data from around the world, and much more.

First, it was Target (TGT) in May, but yesterday it was WMT’s turn to issue a rare earnings warning outside of its regularly scheduled quarterly earnings report. As noted in last night’s Closer, the company noted that “increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars”.  In response to the warning, shares of the retailer plunged close to 10%, and if those levels hold into the opening bell, it will be the stock’s largest downside gap since the 1987 Crash.  Including today’s decline at the open, today will be WMT’s second downside gap to make the top ten (since 1985) this year.  The only other year with two entries on the list is 2020 in the middle of the COVID crash. There weren’t even two declines of similar levels during the Financial Crisis!

Looking at the chart below, it’s amazing to see how strong WMT was in the late 1980s and 1990s only to stall out, relatively speaking, at the turn of the century.  Including dividends, WMT stock has had an annualized return of 4.32% from 12/31/99 through the opening bell today compared to the S&P 500’s gain of 6.5% over that same period.

While the largest downside gap since the 1987 crash may seem a bit excessive, keep in mind that as of yesterday’s close (before the warning was released), WMT was only down about 8% YTD and trading at a premium to the S&P 500 as investors viewed it as a port in the storm.  At the opening bell today, WMT will be down less than 18% YTD, which is only slightly weaker than the S&P 500, with a valuation much closer to inline with the broader market.  In bear markets, there are no ports.

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