This was the second week in a row dropping a child off to college so I did not micromanage the daily news. From a distance, things felt very extreme. Big swings. The market headed one direction, I would work a few hours and then see it was moving the opposite direction. After all of that, the week finished lower even though Friday was strong. The Dow lost 0.85 percent, the S&P 500 lost 1.43 percent and the Nasdaq lost 2.05 percent. Only two items this week, and both of them are about looking underneath a number instead of at it.
Walmart beat, raised its outlook and the stock fell nine percent
Walmart reported Thursday morning. Revenue came in at $187.94 billion, up 5.9 percent from a year ago. Adjusted earnings were 81 cents a share against the 74 cents analysts expected. The company raised its guidance for the rest of the year on sales, on profit and on earnings.
That is the version most people read. It is the quick snippet of news I heard while putting furniture together for my son’s dorm room. The stock fell about nine percent that day, from $114.30 to $103.84. It was the worst earnings day Walmart has had in ten quarters.
This disconnect is why you always have to look closer at the numbers as discussed at How to Read an Earnings Release.
Walmart received tariff refunds during the quarter. Refunds of tariffs the company had already paid, roughly $2.9 billion of them. That money landed in the profit line. Walmart said on its own earnings call that those refunds accounted for about 750 basis points of its operating income growth. Operating income grew 17.4 percent, so a little over 40 percent of that improvement came from the refund rather than from the business.
Just in case the term ‘basis points’ is unfamiliar to you, it is common terminology when talking about interest rate moves. A basis point is one hundredth of a percentage point, so 750 basis points is 7.5 percentage points. Operating income grew 17.4 percent and 7.5 of those points came from the refund.
Strip the refund out and the underlying growth was still good, at the top of what the company had guided. But good and 17.4 percent are two very different sentences.
Refunds do not repeat……well it is not common. And Walmart is not keeping the money. The company said it will spend it lowering prices for shoppers, which is why the guidance for this current quarter is soft. Walmart expects operating income to grow two to four percent next quarter against seven to 8.5 percent for the year. The chief financial officer told investors to look at the two quarters together rather than at either one alone.
Then there is the number that measures whether people are actually buying more. Sales at stores open at least a year grew 2.6 percent (this is referred to as same store sales). Analysts expected 3.5 percent. It is a reflection of the average shopper in the United States, and it came in short.
Here is the useful part. A company can beat expectations without the business performing better. When you see a beat, the question worth asking is where the extra money came from. Selling more is one answer. A refund, a tax item or a one-time sale of something is a different answer entirely. The first one repeats. The others do not.
One more thing, and it connects to what I wrote last week about Intel and buybacks. During this same quarter Walmart spent $3 billion buying back its own shares, 25.7 million of them, at an average price of $117.61. The stock closed at $103.84 the day it reported.
As we have discussed, a buyback shrinks the number of shares outstanding and thus improves earnings per share. At Walmart’s size this one barely moved the number, a fraction of a cent on that 81 cents. But the mechanic is worth knowing, because at a smaller company it can lift earnings per share enough to matter without the business earning a dollar more.
Do not get me wrong, a buyback can be a very wise use of money. This is just some guidance to help you understand.
The government did a buyback too, and it did not work
Last week I explained what happens when a company buys back its own stock. This week the United States Treasury bought back its own bonds. It is similar in concept but very different underneath the surface. And the difference is worth a little time.
Some background. Treasury bonds are how the federal government borrows money. The interest rate on those bonds is called the yield, and when investors do not want to hold them, the yield has to rise to attract buyers. That is what was happening. On Tuesday the yield on the 30-year Treasury bond went above 5.3 percent, the highest since 2007. (Remember it is the 10-year yield that mirrors mortgage rates.)
Rising yields matter to you even if you never buy a bond. They raise the cost of borrowing for everyone, including mortgages, car loans, business loans and the government’s own debt. They also make bonds more attractive relative to stocks. Some people are very happy to lock in more than 5 percent from the government for 30 years, knowing they get their money back at the end no matter what the price does in between. As such, this pulls money out of the stock market and that is a big part of why the market fell this week.
On Wednesday morning the Treasury Department announced it would at least double the size of its bond buybacks. It worked immediately. Yields dropped. The 30-year closed down nine basis points (from 5.29 percent to 5.20 percent) and stock futures jumped.
On the same day, total federal debt passed $40 trillion for the first time.
On Thursday the whole thing came undone. The 30-year yield rose right back to where it had been before the announcement. Stocks fell hard, with the S&P 500 down 0.9 percent and the Nasdaq down one percent.
Here is why it did not hold, and it is the same idea as the Walmart item. When a company buys back its own stock, the shares are retired and there are fewer of them. Your slice grows. When the Treasury buys back its own bonds, the debt does not go away. The government is buying back bonds using money it borrowed. It changes which bonds are outstanding and when they come due. It does not change how much is owed.
The market believed it for one day, perhaps hours, and then it did the math. An announcement can move a price. It cannot change what is underneath it.
The Federal Reserve meets at Jackson Hole this coming week, with Chair Kevin Warsh giving his first keynote there on Friday. The minutes from the July meeting came out Wednesday and showed three officials who wanted to raise rates. So, there is more to come on this next week and I am an empty nester with plenty of time.
One more thing, and it has nothing to do with money
I mentioned this above but wanted to close with my children being off to school now. It was exhausting physically and emotionally. Thalia and Jaden may not be in my home, but they are always with me. I am always wondering how they are and if they are okay and wishing I could help make sure they are thriving. I literally want to buy a flight to Baton Rouge and Asheville, NC, turn off Life360 and be their guardian angel. It is time to let go, though. I am trying. Well, I am failing at trying but trying nonetheless.
Two weekends. Two children. Two states. I close this post while sitting in a quiet home. Too quiet really. Perhaps a little lonely but I know amazing things are to come for my family.
Blessings Come From the Worst of Times.
See you next Saturday.
Christopher
Weekly Notes — August 29, 2026