Shares fell after paltry economic data and a weaker outlook for the world’s largest retailer underscored the effects of inflationary pressures on consumer spending, with recession fears rife as the Federal Reserve prepares to offer a further significant rate hike.

The liquidation of Walmart Inc. has dragged industry peers down, with Morgan Stanley saying the news is a “potential warning signal” for margins on merchandise giant Amazon.com Inc. United Parcel Economic Barometer Service Inc. collapsed as package deliveries fell more than expected. The tech-heavy Nasdaq 100 edged out earnings from Microsoft Corp. and Google’s parent company, Alphabet Inc.

“From a business perspective today, what drives red is disappointing guidance from Walmart, which calls earnings resilience into question,” said Angelo Kourkafas, investment strategist at Edward Jones. “We have spoken with our clients about earnings estimates and how, while we don’t expect a deep recession, we believe earnings estimates are high given the challenging macro backdrop.”

Traders also braced for another 75 basis point hike from Fed officials on Wednesday, with a combined 150 basis point hike in June and July representing the biggest rate hike since the early 1980s. when then-President Paul Volcker was battling sky-high inflation. . Darkening views on the economy sent U.S. consumer confidence tumbling to the lowest level since February 2021, while an indicator for new home sales fell for the fifth time this year.

Fed rate hikes are exhausting their welcome in bond markets, with a measure of the yield curve that Chairman Jerome Powell has pointed to as a recessionary indicator sending a warning message. The difference between rates on where three-month bills are now and where they are 18 months from now fell about 95 basis points in July, the biggest monthly decline in data since 1996.

U.S. officials should stay hawkish longer amid persistently high inflation, say strategists at Goldman Sachs Group Inc., the latest to enter the debate over a potential central bank pivot as growth slows . Their view is in line with that of Morgan Stanley’s Michael Wilson, who also said on Monday that it was too early to expect the Fed to halt its hike. Meanwhile, strategists at JPMorgan Chase & Co. noted that bets that prices have peaked will lead to a pivot from the Fed and improve the situation for equities in the second half.

“A soft landing seems a long way off,” wrote Seema Shah, chief global strategist at Principal Global Investors. “In the past 11 cycles of tightening, the Fed has dodged recession only three times (1965, 1984 and 1994). In each of those cycles, inflation was lower and the fed funds rate was significantly higher when it took off, so Fed tightening didn’t need to be as dramatic as it does. today.

Other company highlights:

  • General Motors Co. posted a lower profit than analysts’ estimates as semiconductor shortages kept production volumes in check. The automaker also warned that it is bracing for tougher times for the economy.
  • 3M Co. plans to divest its multibillion-dollar healthcare operations, a move that could leave the maker to the brim as it faces shifting economic currents that have sapped its profits.
  • McDonald’s Corp. reported sales that beat estimates as consumers continue to eat out despite higher prices.
  • Coca-Cola Co.’s sales exceeded expectations and the company raised its guidance for the full year.
  • General Electric Co. beat Wall Street earnings expectations and reported surprise positive cash flow as sales in the key jet engine division soared.
  • Archer-Daniels-Midland Co. posted its highest ever profit for a second quarter as soybean processing boosted profits.
  • Coinbase Global Inc. is facing a US investigation into whether it improperly let Americans trade digital assets that should have been registered as securities, according to three people familiar with the matter.

The annual summer lull, combined with steadily deteriorating economic conditions and recession fears, is also keeping junk bond borrowers on the sidelines, with month-to-date supply standing at $1.06 billion. US dollars, the slowest July at least since 2006.

Here are some key events to watch this week:

  • Alphabet, Apple, Amazon, Microsoft, Meta gains expected this week
  • Fed Policy Decision Briefing Wednesday
  • CPI Australia, Wednesday
  • US GDP, Thursday
  • Eurozone CPI, Friday
  • US PCE Deflator, Personal Income, University of Michigan Consumer Sentiment, Friday

Some of the major movements in the markets:

Shares

  • The S&P 500 fell 1% at 1:33 p.m. PT
  • The Nasdaq 100 fell 1.8%
  • The Dow Jones Industrial Average fell 0.4%
  • The MSCI World index fell 0.8%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.4%
  • The euro fell 1% to settle at US$1.0120
  • The pound fell 0.1% to settle at US$1.2026
  • The Japanese yen was little changed at 136.67 per dollar

Obligations

  • The yield on 10-year Treasury bills was little changed at 2.79%
  • Germany’s 10-year yield fell nine basis points to 0.92%
  • The UK 10-year yield fell two basis points to 1.92%

Goods

  • West Texas Intermediate crude fell 0.9% to US$95.86 a barrel
  • Gold futures fell 0.2% to US$1,734.40 an ounce