Grim news from Walmart sends US markets lower

Big retailers and technology companies led stocks lower on Wall Street Tuesday after Walmart warned that inflation is hurting American consumers' spending power.

The sell-off comes ahead of the Federal Reserve's latest interest rate policy statement on Wednesday, when economists expect the central bank to announce another sharp rate hike as it ratchets up its fight against surging inflation.

The S&P 500 fell 1.2%, wiping out nearly half of the benchmark index's gains from last week. The Dow Jones Industrial Average dropped 0.7% and the tech-heavy Nasdaq Composite closed 1.9% lower.

Walmart slumped 7.6% after the retail giant cut its profit outlook for the second quarter and the full year late Tuesday, saying that rising prices for food and gas are forcing shoppers to cut back on more profitable discretionary items, particularly clothing.

The retailer's profit warning in the middle of the quarter is rare and raised worries about how the highest inflation in 40 years is affecting the entire retail sector.

Stocks of other major chains also fell. Target dropped 3.6%, Macy’s slid 7.2% and Kohl’s fell 9.1%.

Investors have remained deeply concerned about inflation’s impact on company profits and how it will affect U.S. consumers. While Americans’ finances are relatively strong thanks to savings built up during the pandemic, those nest eggs are being spent on high gas and food prices.

“The client base of Walmart is obviously in probably the lower quarter or maybe lower third of the income brackets,” said Randy Frederick, managing director of trading & derivatives at Charles Schwab. "Those aren’t people that drive most of the discretionary spending anyway, but they are people who are most vulnerable to the inflation pressures.”

Stock indexes were in the red from the...