Walmart cut prices aggressively last quarter and still watched store traffic growth get cut in half.
U.S. comparable sales rose 2.6% in Walmart's fiscal second quarter, well short of the 3.8% Wall Street expected. Traffic increased just 1.5%, down from 3% in the previous quarter, and Walmart (WMT) shares fell about 6% before Thursday's opening bell.
That sounds like a simple consumer slowdown story.
It isn't.
Walmart and Target are telling different stories
One day earlier, Target (TGT) reported comparable sales growth of 3.8%, beating the 2.5% Wall Street expected. Store traffic increased 3.6%, digital sales rose 8.7%, and Target raised its full-year outlook for the second time this year.
That difference matters.
Both companies sell to the same American households. Both are dealing with higher gasoline prices, tariffs and a consumer who has become more careful with discretionary spending.
Yet Target's traffic accelerated while Walmart's slowed.
It cut prices on 11,000 items in the second quarter after cutting roughly 7,000 in the first. Average spending per transaction still grew only 1.1%, compared with 3.1% a year ago.
For investors, the useful conclusion is that "the consumer is weak" is becoming too broad an explanation for retail results.
Execution is separating winners from losers again.
Target's food and beverage sales grew 7%, its fastest growth in three years, after the company spent heavily to improve grocery traffic. Walmart's U.S. e-commerce business still grew an impressive 24%, while Walmart Connect advertising revenue jumped 43%.
Those higher-margin digital businesses are important, but Walmart still depends on getting millions of people through its stores every week.
The number worth watching next quarter is not another 20% e-commerce growth rate. It is whether that 1.5% traffic growth starts moving back toward 3%.
A 5.2% long bond changes the stock market
Retail is only one part of today's warning.
The 30-year Treasury yield was back around 5.2% Thursday after reaching 5.337% on August 18, its highest level since 2007. The 10-year yield was around 4.67%. Total U.S. government debt has now crossed $40 trillion.
Treasury Secretary Scott Bessent responded by doubling planned buybacks of longer-term government bonds to at least $4 billion per operation.
That helped temporarily.
It does not erase the underlying math.
A 5%-plus long-term Treasury yield gives investors a serious alternative to stocks and raises the discount rate applied to future corporate profits. That matters most for companies whose valuations depend on enormous earnings many years from now.
The Federal Reserve is not rushing to solve that problem. Minutes from its July meeting showed several policymakers were prepared to raise rates, while many said another increase would be needed if inflation does not move toward 2%.
Brent crude near $94 a barrel makes that inflation fight harder. Oil has now risen for five straight sessions as the Iran conflict continues to disrupt Middle East supply.
The next AI number matters more than the headlines
This is where Nvidia (NVDA) comes in.
S&P 500 companies just produced headline second-quarter earnings growth of 52%. But part of that explosion came from huge mark-to-market gains on AI investments held by Alphabet (GOOGL) and Amazon (AMZN).
Remove those gains and S&P 500 earnings growth drops to roughly 33%. Still excellent, but nowhere near 52%. Goldman Sachs estimates AI infrastructure companies generated about one-third of the index's earnings-per-share growth during the quarter.
That makes Nvidia's next report more important than another AI funding announcement.
Nvidia reports after the close on Wednesday, August 26. The company has guided for roughly $91 billion in quarterly revenue with non-GAAP gross margin around 75%.
Those are the numbers to keep on the screen.
If revenue clears $91 billion and margins hold near 75% while 30-year Treasury yields remain above 5%, the underlying AI profit machine is still powerful enough to overcome much tougher valuation math.
If the growth is there but margins begin slipping, August 26 becomes the first serious test of whether the AI boom is getting more expensive faster than it is getting more profitable.
