Posted BY: Zero Hedge

With Walmart Inc. driving home that consumers are retrenching in the face of soaring inflation and rising borrowing costs, investors are grappling with the risk that Wall Street’s expectations for US corporate profits are still too high.

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Stock markets have shed trillions this year and a recession may be looming. Yet one key driver of equity valuations still shows analysts foresee earnings resilience, at least by historical norms. Projections for S&P 500 Index profit margins for the third quarter stand at 13.5%, versus the pre-pandemic quarterly average of 10.5%, according to Bloomberg Intelligence data going back to 2010.

But Walmart’s move to lower its profit outlook this week as it cuts prices to pare inventories is a warning sign for profit expectations broadly, says Nick Colas, co-founder of DataTrek Research. If the world’s largest retailer can’t maintain margins in the face of high inflation and cooling economic growth, it’s an ominous sign for others in that sector, he says. 

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