What happened

On Tuesday, two different pieces of news about consumer spending combined to drag down broad swaths of the stock market. This was particularly apparent in a number of consumer-facing stocks. 

For example, vegetarian food specialist Beyond Meat (BYND) was off by as much as 9.3%, budding coffee chain Dutch Bros (BROS 3.52%) was down as much as 7.1%, and milk alternative provider Oatly (OTLY -3.17%) slipped by as much as 6.2%. At the end of the session, the trio were still trading lower, down 8.8%, 7.0%, and 5.1%, respectively. For context, the broader market indexes also ended lower, as the S&P 500 gave up more than 1.1% on the day, while the Nasdaq Composite shed nearly 1.9%.

To be clear, none of these consumer goods purveyors had anything in the way of company-specific news driving the declines. Rather, alarm bells sounded from two different quarters of the retail sector, suggesting that inflation is having a bigger effect on purchasing behavior than previously realized -- which could ultimately affect consumer goods stocks.

So what

Updates by two retail companies suggested that consumer spending -- which is the bedrock of the economy -- is beginning to weaken. The first bit of news came courtesy of retail leader Walmart (WMT -0.52%). The company provided updated guidance in the face of changing customer buying patterns. Management said that revisions to its forecast were necessary as it slashed prices to control rising inventory levels. 

Walmart is now expecting net sales to grow 7.5% year over year in the second quarter, with adjusted earnings per share (EPS) tumbling between 8% and 9%. Just three months ago, management was guiding for net sales growth of roughly 5%, with EPS flat to slightly higher. 

As the largest physical retailer in the U.S., Walmart is widely considered a bellwether for the broader economy, owing to its "everyday low prices" and broad brick-and-mortar footprint. A deterioration in consumer buying behavior could spell trouble for the economy.

Investor sentiment went from bad to worse when e-commerce facilitator Shopify (SHOP 2.14%) announced that it was laying off a significant portion of its workforce. In an email to employees Tuesday morning, CEO Tobi Lütke said the company would lay off roughly 10% of the company staff, which amounts to about 1,000 employees. 

More alarming than the layoffs themselves was that Shopify confirmed what many suspected: The pull-forward of online retail brought on by the pandemic had since reversed course, reverting to its historical growth rate.

Not only are people not spending as much in stores, but online purchases are off as well.

Now what

In a year that has been rife with difficulties, the hits just keep coming. This is particularly true as people face 40-year-high inflation, rising interest rates, supply chain disruptions, and geopolitical conflicts.

These challenges have begun manifesting themselves in more cautious spending by consumers, who ultimately may be foregoing discretionary spending at coffee chains like Dutch Bros., or choosing less expensive substitutes for Beyond Meat's plant-based fare and Oatly's oat-based milk alternative.

Given these challenges, investors might want to hold off on buying or adding to positions in Beyond Meat, Dutch Bros, and Oatly -- at least until we get a clearer picture of the overall health of the consumer.