On Wednesday, Walmart (NYSE: WMT) stock was guilty by association in the eyes of the market, a dynamic reflected in a share price drop of nearly 3%.
A top investment bank published a downbeat research note on a major peer in the retail world, and the bearishness spread to Walmart's stock. Overall, however, few investors were enthusiastic about any stocks, as Walmart's decline was only slightly steeper than the S&P 500's (SNPINDEX: ^GSPC) 2.2% dip.
The retail sector was in the sights
Before the market open, Goldman Sachs downgraded its recommendation on that peer, Target. The investment bank now rates Target stock only a neutral, one peg down from its previous buy designation.
The key reason for this move, according to reports, is that Goldman feels that Target leans on discretionary (i.e., nonessential) products more than other retailers. According to the researcher's calculations, for its 2024 product lineup, the discretionary-to-staples mix was 53% in favor of the former category.
While Goldman flagged Walmart and several other rivals as leaning more toward staples, the downgrade of a top name in retail spooked some investors away from the sector's stocks entirely. And although the investment bank is correct in its assessment of the discretionary-to-staples ratio, Walmart and its brethren are still vulnerable to downturns in consumer discretionary spending.
Tariff troubles
For sure, the retail industry as a whole is facing potentially bracing headwinds. Personally, I would be more worried about the effect of the current round of tariffs on a range of foreign manufacturers than any other factor just now. These could drive up prices on many goods and lead to significant slumps in consumer spending if they stay in place for an extended stretch of time.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, Target, and Walmart. The Motley Fool has a disclosure policy.
