The retail giant Walmart came in with disappointing earnings. However it was the fact that Walmart warns of a weak outlook going forward that drove stocks down for the second day in a row, this time for a drop of 200 points in the Dow Jones Industrial Average. As Walmart warns of a weak outlook it rekindles concerns of deflation of the US economy. Walmart has been dropping its already low prices to keep sales. Although stocks have been going up and US corporations are sitting on a lot of cash the picture is not so good for the average US consumer. Far too many families are living from paycheck to paycheck.
Exporting Jobs, Reshaping the US Economy, And Less Money To Buy Things
Far too many families that once benefited from middle class jobs in industry are now dependent on cobbling together a series of part time jobs in the service sector. The bottom line is that a lot of Americans are just making enough to get by until the next pay check and even be taking out paycheck loans to survive. Walmart warns of a weak outlook because it is pouring more and more money into keeping its market share while accepting a lower and lower profit margin. What Mother never told you about stock investing is that there may be periods in which cash in king, stocks slide steadily downward, and you have to pay the bank to keep your money on deposit. Think of Japan over the last two decades and how increasingly efficient industries had to keep dropping prices to maintain market share and not go bankrupt. This is the business version of treading water and not one of swimming the English Channel. As Walmart warns of a weak outlook long term stock investors may do well to repeat their fundamental analysis of each stock in their portfolio with an eye toward viability in a deflationary world. Luckily many US corporations are sitting on lots of cash which is a great margin of safety when the values of commodities, purchased goods, and wages are falling. It is a bad then when what the economy needs is an increase in the number of jobs at home.
How Bad Is It For Walmart?
Walmart reported an increase of profits from $1.18 a share to $1.24 a share to a total profit of $4.07 Billion. Unfortunately analysts had expect $1.25 a share
Wall Street had expected Wal-Mart to earn profit of $1.25 a share and $118.1 billion in revenue. Instead, the discount giant said net income rose 13% to $4.07 billion, or $1.24 a share, from $4.02 billion, or $1.18 a share. Same store sales fell slightly. Walmart is investing in new facilities and spending money on other strategies to make money and they are treading water. This would have flattened the stock price in normal times. However, the company is predicting two percent growth for the year after an expectation of up to six percent. Sound investment advice right now will be to keep an eye on the economy to see if a recovery boosts sales at retailers like Walmart. If your analysis implies that deflation is on the horizon it may be wise to keep a larger portion of your portfolio as cash, short term securities like 3 month Treasuries, or very short term certificates of deposit.