Wall Street Falls As Walmart Warning Rattles Retail Sector

U.S. stock indexes fell on Tuesday after Walmart's profit warning heightened fears in the retail sector that consumers were cutting back on discretionary spending in the face of decades-high inflation.

Shares of Walmart Inc slumped 7.7%, while those of Target Corp and Amazon.com Inc fell over 4% each, with the online retail giant weighing the most on the Nasdaq index.

In a sign of rising pressure to shore up profit amid higher costs, Amazon said it would raise fees for delivery and streaming service Prime in Europe by up to 43% a year.

The S&P 500 consumer discretionary index slid 3.2%, leading sectoral declines. The S&P 500 retailing index dropped 3.9%.

"There's a general expectation that Walmart's issues are symptomatic of the entire retail space," said Chuck Lieberman, chief investment officer at Advisor Capital Management.

"No doubt inflation is higher than people are comfortable with, and that's probably going to remain the case for a while."

Along with high inflation, a stronger dollar is also expected to weigh on profits of companies with sprawling global operations.

Wall Street's main indexes have rallied from mid-June lows as softening commodity prices and downbeat economic data prompt investors to scale back expectations of aggressive rate hikes by the Federal Reserve, but fears of a recession have sapped momentum recently.

The Fed is widely expected to deliver a 75 basis-point interest-rate hike at the end of its two-day policy meeting on Wednesday, which would be followed by comments from Chairman Jerome Powell.

U.S. consumer confidence dropped to nearly a 1-1/2-year low in July, data showed, pointing to slower economic growth at the start of the third quarter.

Advance second-quarter GDP data on Thursday is likely to be negative after the U.S. economy contracted in the first three months of the year.

The International Monetary Fund, meanwhile, cut global growth forecasts again, warning of risks from high inflation and the Ukraine war.

At 12:19 p.m. ET the Dow Jones Industrial Average was down 178.18 points, or 0.56%, at 31,811.86, the S&P 500 was down 46.24 points, or 1.17%, at 3,920.60 and the Nasdaq Composite was down 215.17 points, or 1.83%, at 11,567.50.

Among the Dow components, Coca-Cola Co gained 1.6% after the company raised its full-year revenue forecast, while McDonald's Corp rose 2.6% after beating quarterly expectations.

3M Co rose 6.4% after the industrial giant said it planned to spin off its healthcare business.

General Electric Co gained 6.6% after the U.S. industrial conglomerate beat revenue and profit estimates, while General Motors Co fell 3.3% after reporting a 40% drop in quarterly net income.

Apple Inc, Netflix Inc, Tesla Inc fell about 1.5% each, while Alphabet Inc and Microsoft Corp were down about 2.5% and 3.2%, respectively, ahead of their quarterly reports after market close.

Earnings from S&P 500 companies are expected to have risen 6.2% for the second quarter from the year-ago period, according to Refinitiv data.

Declining issues outnumbered advancers for a 1.94-to-1 ratio on the NYSE and for a 1.82-to-1 ratio on the Nasdaq. The S&P index recorded one new 52-week high and 30 new lows, while the Nasdaq recorded 28 new highs and 103 new lows.