By DAVID BERMAN
Wednesday, February 21, 2018
After blaming the recent stock-market correction on bond yields, inflationary pressures and offside bets on volatility, some investors have found a new threat to the bull market: A large retailer's stumble.
The slide in Walmart shares weighed on the Dow Jones Industrial Average throughout the day and then dragged down other major indexes toward the end of the trading session in a rout that will no doubt raise questions about whether stockmarket volatility has returned.
The Dow fell 254.63 points, or 1 per cent, closing at 24,964.75. The broader S&P 500 index closed at 2,716.26, down 15.96 points, or 0.6 per cent.
Stocks have certainly been on a wild ride over the past few weeks.
The Dow fell more than 1,000 points on two particularly harrowing trading days earlier this month - contributing to a total decline of more than 10 per cent, which is the common definition of a market correction.
Some observers blamed the downturn on rising bond yields. The yield on the 10-year U.S. Treasury bond has surged from 2.4 per cent at the start of the year to a four-year high of more than 2.8 per cent, reflecting concerns about inflationary pressures and dampening expectations for corporate profitability.
Higher bond yields also suggest that bonds are now looking more attractive relative to stocks, potentially ending years when stocks looked like the only game in town for investors.
Others felt the sudden correction earlier this month looked out of place with strong U.S. economic activity, tax reform and robust profit growth. Observers pointed fingers at investments that had allowed investors to bet on low volatility. These investments blew up when volatility returned, creating market mayhem.
Whatever the cause, stocks had been recovering recently, which added credibility to the idea that market turbulence wasn't going to last. The Dow added a total of more than 1,300 points over the past six trading sessions, before Tuesday's decline.
This time, the 10-year bond yield didn't look like the culprit for the Dow's retreat: The yield rose only slightly on Tuesday, to 2.89 per cent. As well, corporate profits continue to impress.
According to Bloomberg News, companies in the S&P 500 have reported average profit growth of 14.9 per cent so far during the fourth-quarter reporting season.
Sales have been rising at an impressive 7.8-per-cent clip.
But Walmart stood out with its financial results: The world's biggest retailer reported a profit of US$1.33 a share, which was below analysts' expectations. It also projected a disappointing profit for the year ahead.
Perhaps more worrisome, its online sales growth slowed to 23 per cent from the previous quarter, or about half of the pace of recent quarterly growth.
What Walmart has to do with the broader market is an open question, of course. But Tuesday's decline implies that investors may be keen to sell on disappointment and worry about the details later.
WITH FILES FROM BLOOMBERG NEWS