KEY POINTS

  • As soon as the Federal Reserve lifted interest rates, markets crashed.
  • The Fed’s stance on inflation suggests prioritizing lower inflation over economic strength.
  • Walmart has a long history of doing well during recessions and could do so again.

On Wednesday, investors were waiting to hear from the Federal Reserve about its future interest rate policies, and one stock was a winner despite recession worries. Following the 2 p.m. EDT announcement and subsequent press conference, the Dow Jones Industrial Average (^DJI)S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) all began to fall in both directions, with losses coming just short of 2% on the day.

The Fed’s decision suggested that it prioritized bringing down inflation above sustaining economic development. This dared Wall Street bulls who had hoped the central bank would become more dovish as gasoline prices reached their high. Perhaps the most telling sign that the stock market now expects a recession is that the single stock in the Dow Jones Industrials to rise in value Wednesday was Walmart (NYSE:WMT). Continue reading for a deeper look at what occurred and how Walmart’s profit might be the economy’s suffering.

Increased rates for the duration

Economists expected much of the Federal Reserve’s actions on Wednesday. Instead, the central bank increased its Federal Funds rate by 3/4%, establishing a new range of 3% to 3.25%. However, it didn’t pass the more aggressive full-point increase that some economists thought was possible.

However, investors were startled by Fed Chairman Jerome Powell’s determination to fight inflation. He remained focussed on the fight, even if it meant a recession and slowing economic growth. Powell acknowledged that high rates would cause pain for millions of Americans, potentially weakening the job market and raising customer borrowing costs.

Conversely, the Fed chair believes that taking all that suffering into account still leaves the central bank’s forceful action as a superior alternative to entrenching inflation expectations in the economy. In his view, Powell feels it is preferable to get the difficult work out of the way sooner rather than later by sacrificing price stability.

If Fed officials’ predictions are accurate, short-term rates could rise more than 4%. Moreover, it might be a few years before they start to drop.

Walmart’s recession-proof history

Walmart’s 1% gain on Wednesday may evoke memories of the Great Recession in 2008 and 2009. In 2008, the S&P 500 plummeted 37%, with many large-cap stocks plummeting even more dramatically. On the other hand, Walmart stood out as one of the few Dow stocks to register modest gains throughout that year.

During difficult economic situations, it’s easy to see why Walmart’s appeal is so strong. Shoppers don’t abandon their purchases in the retail sector simply because money is tight. But, they do find methods to cut expenses. When consumers are strapped for cash, one of the first things they naturally do is switch to cheaper alternatives. One such alternative is Walmart. During economic downturns, dollar stores have experienced similar patterns.

It’s too soon to call a recession inevitable. On the other hand, investors appear to be preparing their portfolios as though a recession is likely. The majority of the stock market suffered similar losses as those seen by major indexes on Wednesday. Still, Walmart may benefit from investors’ current behavior.

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