Please ensure Javascript is enabled for purposes of website accessibility

Dow Jones Slumps 200 Points as Index Changes Take Effect, Walmart Stock Downgraded

By Timothy Green – Aug 31, 2020 at 1:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The index was having a rough day.

The Dow Jones Industrial Average (^DJI) looked a little different on Monday, with (CRM 1.76%), Amgen (AMGN -0.39%), and Honeywell International (HON 0.00%) joining the index. All three stocks slid on Monday, helping to drag the Dow down 0.78% by 12:40 p.m. EDT.

Also contributing to the Dow's losses was Walmart (WMT -0.27%). While the stock has surged this year, an analyst downgraded it on Monday over concerns of a spending slowdown for the discount retailer.

A Wall Street street sign.

Image source: Getty Images.

Dow changes take effect

The stocks that make up the Dow have only changed 60 times since the index was created in 1896. On Monday, the latest change took effect.

Salesforce, Amgen, and Honeywell International officially entered the Dow on Monday, replacing ExxonMobil, Pfizer, and Raytheon Technologies. This happened on the same day that Dow component Apple completed its 4-for-1 stock split. Since the Dow is weighted by stock price, that split lowered the Dow's weighting toward technology stocks, which prompted the changes.

The new Dow components didn't get off to a great start as part of the index. By early Monday afternoon, Salesforce stock was down 1.6%, Amgen shares were off 0.5%, and Honeywell stock had fallen 2.1%.

Walmart hit by analyst downgrade

Mega-retailer Walmart has seen sales surge during the pandemic. During the second quarter, the company posted U.S. comparable-store sales growth of 9.3%. That was driven by both general merchandise and groceries, as well as a 97% increase in e-commerce sales.

Economic stimulus likely played a big role in Walmart's recent success. Americans received direct stimulus checks after the pandemic forced many businesses to temporarily close, and unemployment benefits were boosted by a $600 weekly federal supplement that ran through July.

This extra cash combined with less spending on restaurants and travel led to increased consumer spending in certain categories. Walmart saw strong demand for TVs, computing and connected-home products, and outdoor entertainment and sports products. This was on top of elevated demand for cleaning supplies and other pandemic-related products.

One analyst thinks that less economic stimulus in the year ahead will hurt Walmart's results. R5 Capital downgraded the stock on Monday from buy to hold, citing concerns about the retailer's sales over the next year, as analyst Scott Mushkin expects lower unemployment benefits and a contraction in disposable income to translate to a less favorable environment for Walmart.

Mushkin is likely right. In fact, Walmart warned during its second-quarter earnings call that the waning of economic stimulus toward the end of the quarter brought its comps growth back to a normal range. Comps in July were up just 4%, even with the federal supplemental unemployment benefit still in effect.

Congress has yet to agree on another stimulus bill, and any bill that manages to get passed will likely be smaller in scope than the CARES Act passed in March. Without economic stimulus, Walmart's customers are unlikely to spend as freely in a rough economy.

The retailer's efficiency and low pricing will allow it to weather whatever storm is coming, but sales growth is unlikely to be all that impressive without additional economic stimulus. The e-commerce business may continue to boom as the pandemic plays out, but the in-store business likely won't fare as well.

Shares of Walmart were down about 2.4% by early Monday afternoon on the analyst downgrade. The stock is still up about 15% since the start of the year.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Walmart Stock Quote
$130.95 (-0.27%) $0.36
Salesforce, Inc. Stock Quote
Salesforce, Inc.
$148.89 (1.76%) $2.57
Honeywell International Inc. Stock Quote
Honeywell International Inc.
$170.07 (0.00%) $0.00
Amgen Inc. Stock Quote
Amgen Inc.
$225.99 (-0.39%) $0.88
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.