Yesterday Walmart saw the biggest one day drop in its share price since 1987 which was on the eve of the Black Monday stock market crash.   So is the 11% drop a sign of things to come for other companies or is it specific to the circumstances of Walmart?

Walmart has the reputation of being one of the best (if not the best) run retailer in the world.  Their focus on value and meeting customer needs has led to incredible growth and enabled them to contend with the Amazon threat.  So people are watching this one closely.

What caused the drop in the stock price?  Well basically Walmart cut it's earnings guidance due to the impact of inflation in the US and reported worse than expected numbers for last quarter.  It says it is already seeing higher wages and a reduction in sales while at the same time the input costs of goods has increased due to supply chain disruptions.   

Most interestingly their data shows us that increasing food prices are now impacting consumers, they reported  "....the rate of inflation in food pulled more dollars away from (general merchandise) than we expected as customers needed to pay for the inflation in food". 

This will obviously not be isolated to Walmart, all retailers will see this trend.  But what it is telling us more broadly is that as inflation rises then consumer spending power will be continue to be reduced and consumers will have to make decisions based upon what is essential to them. 

That means any company selling goods or services to consumers is likely to see a reduction in their sales and lower revenue.  Which also means it's also likely to be a time of reckoning for those companies living on debt which they'll 'pay back in the future'.   You can forego that Peloton subscription but you can't live without food.

We believe that Walmart is a well managed business and given it's focus on price cutting, value and food sales it's likely to be one of the winners in these uncertain times!  Those companies that are highly leveraged and rely on monthly subscriptions that you can easily cancel, maybe not so much!

Remember as an investor you need to think long term.

All comments are personal opinions only and not intended as investment or trading advice.  Inteligex accepts no liability or responsibility whatsoever for any loss or damage resulting from the use of Inteligex products, services or opinions incurred while trading or investing.