Walmart...

Macro Perspectives

Yesterday we talked about the setup for Walmart, to positively surprise on earnings . . . They did - the stock was up 5% on the day.

As we've discussed here in my daily notes many times, never underestimate the appetite of corporate America and Wall Street to set the bar low, so they can beat expectations.

What's the perfect time to dial down expectations? When the broad market is suffering and broad confidence is low.

Walmart used that playbook in late July, just two days ahead of a Fed meeting, where the Fed was expected to raise rates another 75 points, and was expected to continue hammering home the vision of "aggressive" rate hikes. The perception that comes with this Fed outlook; higher and higher rates => more restrictive economic activity and less risk taking => lower stock market.

So, on July 25th, just three weeks before their scheduled Q2 earnings release, Walmart decided to "provide a business update," and "revise the outlook."

They blamed inflation (food and fuel costs), an easy culprit to place blame, for what they warned would be lower margins. And they updated their guidance to an EPS decline of 8% to 9% for Q2 (compared to the same quarter last year).

The stock did this ...

Again, this was on July 25th, two days before the Fed meeting. CNBC ran this headline on July 26th: "The Fed could surprise markets by sounding even more aggressive as economy teeters."

But as we know, July 27th didn't go according to the consensus view. Instead, Jay Powell signaled the near end (if not the end) of the tightening cycle.

The S&P 500 has rallied 9% since, and that brings us to yesterday’s Walmart earnings announcement;

• Just three weeks ago, they told us EPS would decline by 8-9% (yoy).

• Yesterday, they reported 23% growth in EPS.

There is classic "earnings management" and there is outright earnings manipulation - this looks like the latter.

If we were to take a signal from this, it could be that Walmart shares in our interpretation that both the July Fed meeting and the bazooka of fiscal stimulus that has followed, gave the greenlight for a resumption of a hot economy and the rise in asset prices.