Key Events: Walmart exposes current vulnerabilities
Walmart reported healthy earnings before the market opened on Thursday, but the market reacted negatively to the company’s forecast. Citing “uncertainties related to consumer behavior and global economic and geopolitical conditions”, the company delivered an outlook that calls for slower revenue growth and earnings well below expectations[1].
The uncertainties that Walmart highlighted reflect ongoing tariff announcements and rising inflation expectations that are incrementally weighing on the market outlook.
Market Review: Stocks retrench on stagflation fears
After reaching a new all-time high on Wednesday, domestic equities fell sharply on Friday to end the week in negative territory[2]. International stocks outperformed and Emerging Markets showed surprising upside in a risk-off environment.
Bonds gained ever so slightly as the 10-year yield fell for the fifth straight week.
Outlook: Trend weakening suggests incremental caution
The level of stock prices is ultimately determined by two key variables: 1) earnings and 2) the price you pay for them. This makes sense since these variables comprise the oft cited P/E ratio. We referenced this in our most recent monthly update.
Breaking down this valuation metric further, we find that the denominator (earnings expectations for forward PE) has an implied growth component, and the numerator (price) is primarily influenced by the discount rate, a factor that is derived from interest rates and inflation expectations.
Commentary from Walmart and headlines surrounding tariffs and global economic uncertainty would indicate that investors would be wise to contain their optimism regarding ‘growth’ and increase their ‘discount rate’ factor due to uncertainty surrounding inflation expectations. In essence, the past week was an incremental move towards stagflation and the market’s reaction is rational and understandable.
As shown in the following chart, the market has been digesting changes to the outlook since the election and has developed a flattening trend over the last 4 months. Consolidation of this nature should be expected following 2 years of advances greater than 20% driven largely by P/E multiple expansion[3]. Earnings should continue to be solid even though the growth rate is slowing and that is the good news. The risks are the uncertainties (inflation, trade, global growth) related to the economic outlook which may in turn lead to a period of P/E multiple contraction. On balance, we are still progressing within a broad uptrend channel and the developments we have seen thus far in 2025 are largely consistent with our capital markets assumptions.
This material is intended to be educational in nature,[4] and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. OneAscent can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
[1] Source: Washington Post story “Walmart Predicts Lower-than-expected Profits, Citing Cloudy Economy” by Jaclyn Peiser, via Bloomberg.
[2] Source: Bloomberg data.
[3] Source: S&P Global data representing the S&P 500 via Bloomberg.
[4] Source: Market Returns reference the following indices: Large Cap – S&P 500, Mid Cap Growth – Russell Midcap growth, Mid Cap Value – Russell Midcap Value, Small Cap – Russell 2000, Developed – MSCI EAFE, Emerging – MSCI Emerging Markets, Aggregate – Bloomberg US Aggregate, High Yield – Bloomberg High Yield
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