What Happens In Wal-Mart Doesn't Only Stay In Wal-Mart

Includes: WMT
by: Ariel Aharonovich

Last Friday, Wal-Mart (NYSE:WMT) came out with some very disturbing news. While many focus on Wal-Mart itself, I believe that this news have far greater impart on the US economy than on Wal-Mart as a stand-alone.

Private consumption is responsible for roughly 70% of the US economy. As such, Wal-Mart can't be perceived as a single company but as the best mirror for the US consumption macro economic heartbeat.

Here is what Mr. Jerry Murray, VP finance and Logistics at Wal-Mart, wrote in early February:

In case you haven't seen a sales report these days, February MTD sales are a total disaster. …

The worst start to a month I have seen in my ~7 years with the company. ... That points to our competitive landscape, which means everyone is suffering and probably worse than we are. ...

We have to fight against the tougher economic environment to earn a bigger share of a smaller consumer spending pie.

Along the lines of these Wal-Mart executives' exchanged e-mails another Wal-Mart manager wrote:

Well, we just had one of those weeks here at Walmart U.S. Where are all the customers? And where's their money?

Although this is "just" an e-mail - I believe that this is huge.

In spite of the US economy clearly slowing down the markets are way underestimating the importance and influence of the Fiscal recent changes on the economy, on the average consumer and on corporates earnings.

It's not yet about the possible spending cuts but even the "1/4 Fiscal Cliff" that we did fall from has a significant enough impact. Increasing the payroll tax isn't just a (relatively) small number but it's a very powerful item that causes an immediate and direct effect on the US consumer.

Wal-Mart is a single company, but unlike Vegas, what Happens in Wal-Mart doesn't only stay in Wal-Mart.

I strongly believe that the US markets are poised to go through a 4%-7% correction soon. At 1529, the S&P500 is up ~14% from its post-elections low (1343.35, November 16th 2012). Normally, on every 3% that the markets go up they tend to correct, when they correct, with at least 1% down. One third of 14% is over 4% which is therefore the lower end of the correction range I see ahead of us. The additional 3% (or even more) may be a result of the sequestration that is expected to shave 0.5%-1% off the US GDP. For an economy that is expected to grow 2% in 2013 this is a major impact that seems to be ignored by the markets. I expect higher level of nervousness as we get closer to the deadline (March 1st).

Beware of the correction ahead: It's not only Wal-Mart, it's the wall facing the US economy.

Disclosure: I am short FIVE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.