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Walmart earnings — What you need to know in markets on Thursday

Myles Udland
Markets Reporter

Stocks fell on Wednesday with concerns out of the Chinese tech sector weighing on markets.

Markets opened lower on Wednesday after Chinese tech giant Tecent reported its first slowdown in quarterly profits in 13 years. South African company Naspers — which owns a third of Tencent — dropped sharply on this news.

And as George Pearkes, an analyst at Bespoke Investment Group, noted on Wednesday, together these companies account for about 7% of the EEM ETF which tracks emerging markets; EEM fell 2.8% on Wednesday.

Throughout the day Wednesday, stocks got a bit of a recovery from their morning lows with the tech-heavy Nasdaq suffering the biggest losses, dropping 1.2%. The Dow lost 137 points, or 0.5%, and the benchmark S&P 500 fell 0.7%, or 21 points, on the session.

The drop in markets also following what was a strong morning for U.S. economic data, particularly retail sales which rose 0.5% during July against expectations for a 0.1% increase. The downward revision in June’s number, however, boosted the July headline figure.

A standout in the report was the rise in food services sales, up 1.3% in July and higher for the third-straight month to bring the annualized increase over that period to 25.3%, a number Ian Shepherdson at Pantheon Macroeconomics called “unsustainable.”

The acceleration in spending on food and drink away from home, however, gives a sense of where consumers are likely spending any extra money they got from the Trump tax cuts.

Spending on food and drink away from the home is accelerating faster than overall retail sales growth since the tax cuts were passed last year. (Source: FRED)

Data Wednesday also showed industrial production in July missed expectations while manufacturing data from New York state topped estimates. Productivity in the second quarter also rose at an annualized rate of 2.9%, the biggest increase in almost four years, though productivity over the last year has risen 1.3%, in-line with the average annual gain over the last decade.

On Thursday, investors will get the weekly report on initial jobless claims as well as data on manufacturing activity from the Philly Fed and a report on housing starts and building permits for the month of the July.

The earnings calendar will be more notable, with the week’s biggest report coming before the market open as Walmart (WMT) is scheduled to report results for the second quarter.

Wall Street expects the retail to earn adjusted earnings per share of $1.22 on revenue of $126 billion with U.S. same-store sales at Walmart stores expected to rise 2.2%, excluding gas.

Other companies reporting results Thursday should include Nordstrom (JWN), Nvidia (NVDA), Applied Materials (AMAT), and J. C. Penney (JCP).

The logo for Walmart appears above a trading post on the floor of the New York Stock Exchange, Thursday, May 17, 2018. Walmart is set to report earnings before the market open  (AP Photo/Richard Drew)

Buffett’s American slant

Warren Buffett is a big believer in the U.S. economy.

This is not a new idea.

In recent annual letters, Buffett has written some version of a sentence that says betting against the country since its founding about 240 years has been a losing proposition over that period. He does not expect this to change anytime soon.

Recent moves inside of Berkshire Hathaway’s stock portfolio, however, show Buffett continues to firm up his bets on the U.S. economy — and U.S. consumers, specifically — while declining to add any new positions during the quarter.

And this theme is most clearly playing out with Berkshire Hathaway’s (BRK-A, BRK-B) investment in Apple (AAPL). Berkshire now own about 5% of the company, holding about 252 million shares worth about $52 billion. On paper, Berkshire has made around $17 billion from its position.

At Berkshire Hathaway’s most recent annual shareholders meeting, Buffett said of Apple’s business that they have, “a very, very special product, which has an enormously widespread ecosystem, and the product is extremely sticky.” The company also buys back a lot of stock, has billions in cash on its balance sheet, and trades a multiple lower than that of the overall market. 

At its core, however, Apple is really just the quickest way to bet on upper middle class Americans’ spending habits. NYU marketing professor Scott Galloway notes that iPhone users make 40% more than Android users.

“Consumers aren’t paying $1,000 for an iPhone X because they’re passionate about facial recognition,” Galloway wrote back in February. “They’re signaling they make a good living, appreciate the arts, and have disposable income. It’s a sign to others: If you mate with me, your kids are more likely to survive than if you mate with someone carrying an Android phone.” 

And while Warren Buffett might not see the iPhone as a sign of sexual vitality, he certainly knows that iPhones are expensive and replaced regularly. And in a world where the U.S. economy is growing faster than its developed market peers and trade concerns muddy the outlook for global growth going forward, Apple gives Buffett a way to increase his investment in the U.S. economy.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland