On Thursday in the US, a bullish mix of strong economic data on building starts, industrial production, unemployment claims, and Walmart's latest quarterly sales and earnings report unfolded. The impact was felt across various sectors, leading to rises in US bond yields and concerns about economic growth and inflation. Notably, Walmart's impressive performance drove increased revenue and earnings in the second quarter, while the overall economic outlook appeared robust.
The combination of favorable economic indicators resulted in a surge in US bond yields and a decline in Wall Street's performance for yet another session. Real-time estimates of US economic growth indicated a substantial rise to nearly 6% on an annual basis. Despite these shifts, there were no indications of imminent interest rate hikes or alarming inflation trends. This allowed Walmart, the world's largest retailer, to shine, as it reported significant growth in revenue and earnings for the second quarter and raised its forecasts for the rest of the year.
Walmart's strong results came on the heels of a surprising 0.7% rise in retail sales for July, raising questions among economists about potential Federal Reserve rate hikes in the upcoming September meeting. These concerns were further stoked by the Atlanta Fed's GDPNow tracker, which signaled an impressive 5.8% growth rate, reflecting strong housing data, production figures, and jobless claims data. This exceeded the initial estimate of 2.4% growth for the second quarter.
The Atlanta Fed attributed the upward revision to the GDPNow estimate to the robust private housing starts report for July and a positive industrial production report. The compelling performance of Walmart's US retail operations, coupled with its solid international endeavors, contributed to the overall sense of economic strengthening, although not all American retailers experienced the same bullishness.
Additionally, the latest data on initial US state unemployment benefits claims showed a decline of 11,000 to 239,000 claims for the week ending August 12, just below the forecasted 240,000 claims. The increase in claims during the previous week was largely attributed to fraudulent filings in Ohio. These figures, along with the Walmart report and the Atlanta Fed's update, led to increases in US bond yields, with the two-year yield reaching 4.96% and the 10-year yield hovering around 4.30%.
Walmart's July quarter performance stood out for its comprehensive strength, surpassing expectations for both sales and profits. Notably, E-commerce sales for Walmart's US operations surged by 24%, a contrast to the decline witnessed by many other retailers over the past year. The company's revenue rose by 5.7% to $161.63 billion, exceeding market projections, while net income for the second quarter soared by 53% to $7.89 billion.
While celebrating its success, Walmart did express concerns about potential challenges ahead. Rising energy costs and the resumption of student loan payments in October could impact Americans' spending power in the coming year to 18 months. In contrast, smaller rival Target beat profit estimates for the quarter but lowered its annual forecast, reflective of a more subdued sentiment across a significant portion of American retailing.
Despite the positive developments, Walmart's shares, which initially gained 1% pre-market, concluded Thursday with a 2.2% decline. The discrepancy between the retailer's solid quarter and positive outlook and the unease among US investors regarding the strengthening domestic economy and escalating issues in China contributed to this market reaction.