I used to work in advertising and certain slogans are stuck in my brain. “You Can Do This, We Can Help” came from Home Depot and was last used prior to the recession in 2008. Well, Home Depot, the market needs your help and now would be as good as time as any if you have any tricks up your sleeve.

I had something else planned for today, but it’s hard to ignore the 1,000+ point drop in the Dow. The Dow lost 3.5% and the SP500 lost 4% in its worst day since June of 2020. I was looking at the volume, and sadly it was fairly normal. Those looking for some type of a washout, caputulation day are going to have to keep looking.

Sure, volume was higher than the last couple of days, but both the reversal at the end of 2018 and the reversal from the covid collapse in 2020 had more volume than today. I mentioned a couple of days ago that I thought we’d have a shakeout day where the SP500 drops 5%, and we came close today, but it was an organized day of selling, which has me holding off on bullish moves.

While there was a broad market sell-off yesterday, there’s one chart that shows us what’s really happening underneath.

Keep reading below to see the earnings outlook for the rest of 2022.

Let’s start walking through a deeper dive into the numbers and see where the market is going from here…

This one chart is showing us where the market breakdown happened.

Here’s the 1-week relative performance chart of the majors sectors.

Some of the largest retail chains, like Walmart (WMT), Target (TGT), and Home Depot (HD), are in the Consumer Defensive sector and their earnings reports that came out this week are signaling a tough road ahead.

Let’s look at it a different way. As far as earnings this quarter, here’s a chart of the SP500 companies reporting above, in-line, or below estimates.

The sector with the worst earnings season so far is Consumer Descritionary with 37% of the companies missing earnings estimates.  Remember when Amazon (AMZN) came out and said they’re seeing people spending less?  That was a foreshadow of the mess this week.

Consumer Spending is shifting.  Walmart (WMT) announced that customers are walking out with fewer purchased items as more general merchandise saw increases in prices.  They also noticed that more people traded down to cheaper brands or smaller items like half-gallons of milk.

Target (TGT) said that foot traffic was still high this past quarter, but similar to Walmart, they saw changes in what types of goods people bought.  

A common theme that came out of the retail industry earnings calls this week is that they are experiencing profit margin pressure due to supply chains woes, cost increases in freight and transportation, and inflationary pressure on the goods they sell.  It doesn’t help that as we enter the summer months, consumers are transitioning some of the discretionary spending to travel.  If they can’t afford a TV and a vacation, they are choosing the vacation.   

Here’s another way of looking at this – look at the earnings growth per sector.