Kaohoon Morning Brief – 19 May 2022

1) Wall Street falls sharply amid fears of inflation

Wall Street fell sharply on Wednesday with Nasdaq leading the fall by nearly 5% as investors showed concerns of inflation to have an impact on earnings after Walmart and Target warned of rising cost pressures and a shift in consumer behaviour, confirming the fears over inflation.

Dow Jones closed 1,164.52 points lower or 3.57% at 31,490.07 points, while S&P 500 fell 4.04% and Nasdaq plunged 4.73%. 


2) Walmart and Target signal for earnings impact from inflation

Walmart and Target reported their first quarter results this week where both companies had lower-than-expected EPS despite higher revenue growth than forecast.

Walmart reported adjusted earnings per share for its 1Q22 at $1.30 vs. $1.48 expected. Its share price fell 11.35% on Tuesday. 

Meanwhile, Target’s shares fell nearly 25% yesterday after the earnings report and hit a 52-week low. Earnings per share was $2.19 adjusted vs. $3.07 expected. 

Both companies had a partially common statement, saying that they are seeing a shift in consumer behaviour, moving toward essential goods versus discretionary merchandise. Meanwhile, both were seeing higher costs to execute their businesses. 


3) Goldman cuts China 2022 GDP growth to 4% on Covid restrictions

Goldman Sachs cut its forecast for China’s economic growth in 2022 to 4% after the government’s data for April showed a decline in growth as Beijing’s zero-Covid policy has restricted business activities, especially due to the lockdown in major cities such as Shanghai.

The cut by Goldman Sachs was down from an earlier forecast of 4.5% and the Chinese government forecast in March of 5.5% growth.

The firm does not expect China to start fully easing Covid controls before the second quarter of 2023.