These 2 Dow Stocks Are Pointing to a Recession in 2023

The stock market has done a good job so far in 2023 of recovering from last year’s big declines. However, investors have seemed to get a little more nervous recently, and it appeared that the holiday-shortened week was likely to get off to a negative start. Futures contracts on the Dow Jones Industrial Average (DJINDICES: ^DJI) were down about 300 points in premarket trading, with other benchmarks seeing similar percentage losses of around 1% to start the week.

These 2 Dow Stocks Are Pointing to a Recession in 2023

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These 2 Dow Stocks Are Pointing to a Recession in 2023

Within the Dow, a pair of high-profile retail stocks gave investors their latest readings on the consumer economy, and neither company inspired too much confidence among their shareholders. Home Depot (NYSE: HD) and Walmart (NYSE: WMT) haven’t seen customers abandon their stores, but even the potential for slowing demand had their shareholders on rockier footing early Tuesday.

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Home Depot finishes 2022 on solid footing but sees challenges for 2023

Shares of Home Depot dropped 4% in premarket trading Tuesday morning. The home improvement retailer reported fiscal fourth-quarter results for the period ending Jan. 29 that showed the extent to which its growth has slowed, and investors reacted negatively to Home Depot’s expectations that 2023 could prove to have even more difficult business conditions ahead.

Home Depot’s fourth-quarter financial results revealed minimal gains in key business metrics. Revenue inched higher by 0.3% year over year to $35.8 billion. Similarly, net income picked up 0.3% to $3.36 billion. That worked out to adjusted earnings of $3.30 per share, up from the $3.21 per share that Home Depot posted in the fourth quarter of fiscal 2021. The numbers for the full year were slightly stronger, with sales climbing 4.1% to $157.4 billion and earnings of $16.69 per share finishing 7.5% higher than in fiscal 2021.

Key fundamentals of Home Depot’s business were mixed. On one hand, average transaction sizes were up nearly 6% to $90.05. However, traffic levels were down, with the number of customer transactions falling 6% to 378.5 million.

Home Depot projected disappointing numbers for fiscal 2023, expecting flat sales and a mid-single-digit-percentage decline in earnings per share. That’s not the great news Home Depot shareholders had wanted to see, and it makes it less likely that the home improvement stock will return to its highs from late 2021 in the near future.

Walmart’s dividend hike streak turns 50

Walmart shares also fell on Tuesday, trading lower by 4% in premarket trading. The big-box department store giant enjoyed better performance than Home Depot in its fiscal fourth quarter ending Jan. 31, and continued growth, but similar calls for weaker business performance in the coming year led shareholders to rein in their enthusiasm.

Walmart’s fourth-quarter numbers showed healthy gains from year-ago levels. Revenue rose 7.3% to $164 billion, as U.S. comparable sales climbed 8.3% excluding the impact of fuel. Sam’s Club continued to outpace the broader business, posting 12.2% positive comps. Net income also grew substantially, with adjusted earnings of $1.71 per share up from the $1.53 per share that Walmart had in the fourth quarter of the previous fiscal year.

Dividend investors were also pleased to see Walmart raise its dividend for the 50th straight year. The 2% increase was relatively puny, but quarterly payments of $0.57 per share will work out to a yield of just over 1.5%.

Yet Walmart sees more sluggish growth for its fiscal 2024 year. Sales are expected to rise 2.5% to 3% on a 2% to 2.5% rise in comps for the U.S. business. Adjusted earnings of $5.90 to $6.05 per share would be down from the final figure of $6.29 per share for the just-ended fiscal year.

Both Walmart and Home Depot will have to face the possibility that consumers won’t have as much money to spend on their goods. Although Walmart might benefit from shoppers trading down from higher-cost stores, investors can’t assume that either retailer will be able to lead a stock market recovery in 2023.