Sometimes the stock market and the economy are two ships passing in the night.
Markets have already been through some choppy waters. The S&P 500 dropped dramatically after tariffs were announced on April 2 and then steamed back higher this week. But traders are forward looking, and hard data are backward looking. Consumers and companies, while they may be worried, have yet to feel the blow of steep price hikes or
empty shelves as international trade flows respond to the new reality.
Hard economic data are still coming in softly. Cooling inflation figures this week and a slight gain in retail sales paint a picture that activity is gradually weakening, rather than one where the economy is being buffeted by collapsing demand and runaway price gains.
That could be about to change. Walmart CEO Doug McMillion warned on Thursday that tariffs are already affecting costs—and this is before supplies get shorter after a month of a virtual trade embargo with China. Home Depot and
Target, two more consumer bellwethers, will say more on the subject when they report earnings next week.
The worry is that if Walmart, the world’s largest retailer by revenue and known for its low prices, can’t
avoid raising them to remain profitable, then others won’t be able to, either. And if there’s one thing to remember from the recovery from Covid-19, it’s that rising prices are contagious. Momentum builds as companies both see a window to greedily blame the hikes on the environment, or react to the fear that their own costs could spiral out of control.
This is part of what Federal Reserve Chair Jerome Powell was talking about Thursday when he warned about “more frequent, and potentially more persistent, supply shocks.” In theory, the Fed can ignore short-term
shortages and price increases because they’ll blow over. In practice, they often lead to bigger problems.
For now, the economy and the stock market seem to be sending out signals by semaphore, but they’re not sailing in the same direction.
—Brian Swint
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CONTENT FROM: Columbia Threadneedle Investments
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Bonds reclaim role as a volatility buffer
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With markets in flux, fixed income is providing important diversification. We explore the key market drivers and how investors can navigate the evolving landscape.
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Walmart Warns Higher Tariffs Will Raise Its Retail Prices
Walmart beat April-quarter earnings forecasts but said higher import
tariffs will inevitably mean higher consumer prices in coming months. Executives warned that fiscal 2025 guidance was subject to “substantial uncertainty” because of fluctuating tariff and trade policies, changing global economic and geopolitical conditions, customer demand, and inflation.
- Given the range of near-term outcomes that are “exceedingly wide and difficult to predict,” Walmart held off from providing specific guidance for second-quarter operating income growth and EPS, CFO John David Rainey said, adding that if tariffs resume at higher rates, the impact on financials would be “significant.”
- President Donald Trump temporarily paused his 145% tariff on Chinese imports on Monday, setting them at a 30% rate that still threatens profit margins. Roughly one-third of Walmart’s U.S. sales last year came from imported goods, mostly from China and Mexico.
- The
magnitude of tariffs, even at the reduced levels announced this week, means Walmart can’t absorb all the pressures with its narrow retail margins, CEO Doug McMillon said. Walmart imports numerous electronics and toys from China, and imports bananas, avocados, coffee, and roses from Costa Rica, Peru, and Colombia.
- All of this comes amid signs of consumer fatigue. Retail sales edged 0.1% higher in April, but slowed significantly from March’s 1.7% surge, perhaps because shoppers were trying to get ahead of tariffs. Home improvement store sales increased 0.8% and spending in restaurants rose 1.2%, while auto sales fell 0.1%.
What’s Next: Walmart maintained its full-year outlook for net sales to increase 3% to 4%, and for earnings of $2.50 to $2.60 a share. It sees second-quarter sales increasing in a range of 3.5% to 4.5%, which would be higher than the midrange estimate of analysts.
—Sabrina Escobar, Megan Leonhardt, and Janet H. Cho
The Fed’s Era of Activism Could Be Nearing Its End
The Federal Reserve’s 30-year Alan Greenspan-to-Jerome Powell era of central bank activism
could be nearing its end. What comes next could be a narrower, more restrained version of the Fed on everything from balance sheet strategy to its very purpose.
- James Bullard, the former St. Louis Fed president, says the old model of managing inflation in a world of “sticky” prices no longer reflects reality because prices
adjust quickly while contracts are rigid. The Fed should go beyond stabilizing inflation and to ensuring money is predictable enough to support those contracts.
- Jason Furman, a top economist in the Obama White House, sees a different problem: The Fed relies on an ever-shifting mix of indicators, leaving everyone guessing. He advocates for a clearer framework. Others say the Fed should lean more heavily on rule-based approaches, rather than reacting to data in real time.
- Cleveland Fed President Beth Hammack wants a re-examination of Fed balance sheet maneuvers, including the long-term implications of quantitative easing and tightening. Her predecessor, Loretta Mester, says the Fed’s policy decision memos push investors to read too much into the Fed’s every word.
- During his term, Powell evolved from pragmatic centrist to economic firefighter, dramatically cutting rates to zero during the pandemic only to sharply raise them in response to the ensuing inflation. He’s still guiding toward 2% annual inflation but might not get there before his term ends next May.
What’s Next: The Fed is preparing to unveil an updated policy framework this summer, a product of months of internal review. But insiders question whether it will matter. With new Fed leadership and a potentially reconstituted committee in 2026, this summer’s changes may be short-lived. For more on this read here.
—Nicole Goodkind
Berkshire Hathaway Trims BofA, Citigroup Stakes, Adds Mystery Holding
Warren Buffett’s Berkshire Hathaway eliminated its stake in Citigroup and reduced its large holding in Bank of America while roughly doubling its investment in beer, wine, and spirits company Constellation Brands, according to its quarterly holdings filing with the Securities and Exchange Commission.
- Berkshire asked the SEC for confidentiality for stock it didn’t report in the filing, which reflects holdings at the end of March. It did the same thing last year when it was amassing a stake in Chubb. Barron’s es
