Bessent Steps In with Rare Bond Buyback, Walmart Sinks On Weak Sales Growth

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Thursday, August 20th. In today's episode, we'll break down what Treasury Secretary Scott Bessent is doing to push down long-term bond yields. We'll also recap Walmart earnings and tell you why crypto is rallying again. Then stick around to the end of the show to find out why you might be getting a tariff refund check in the mail. We got a great show for you today.
Let's go.
Stocks moved higher on Wednesday with both the S&P 500 and NASDAQ gaining about 0.2%. But once again, the main character of the markets was the bond market as the Treasury Department stepped in to calm some nerves. We've been talking about this all week. Treasury yields have been surging recently. The 30-year yield crossed 5.3% this week, its highest level since 2007 And that has some people wondering if the bond market is flashing a warning sign or if investors are getting nervous about the amount of borrowing happening across the economy, including from the federal government, because the national debt just crossed $40 trillion. And these yields matter way beyond just the bond market because they influence things like mortgage rates and corporate borrowing costs and even stock valuations. So Treasury Secretary Scott Bessent decided to intervene to push yields lower. Scott Bessent yesterday announced that the US Treasury will double the amount of long-term government bonds it buys back from $2 billion to at least $4 billion starting on September 9th. This gets kind of complicated. We might have to do a full deep dive on this, but here's a quick, simple version on what's going on. Right now, the US government has a ton of 10, 20 and 30 year IOUs floating around in the market. Scott Bessent is basically saying the US Treasury will go in and buy back those existing bonds, specifically the 10 to 30 year bonds. And what that does is it creates a buyer for these long term bonds, and it removes some supply from the market, which pushes yields lower. But here's the key part to all of this. The US Treasury will likely finance those purchases by issuing more short term Treasury bills. So another way to think about this is that the government is essentially refinancing some of their long term debt with short term debt. And this move has worked, at least for now. The 30 year Treasury yield dropped about a 10th of a percentage point after the announcement yesterday. So this is basically financial engineering by the US Treasury to keep long term borrowing costs from getting out of control. The problem though is if the Treasury keeps replacing long term debt with short term bills, the government becomes more exposed to short term interest rates. And that's why I don't think this bond market drama is going away. In fact, Treasury yields are rebounding again today. The 30 year is back to 5.26%. So we'll continue to keep an eye on the bond market along with everything else happening. So if you're new here, definitely get subscribed to the podcast and tune in every day to stay in the loop.
Let's run through some headlines. Starting with Walmart. Walmart shares are getting hammered this morning, even though the company technically beat earnings expectations and raised their outlook for the year. Revenues last quarter grew about 6% to $188 billion. That beat expectations and their adjusted earnings came in at $0.81 per share versus the $0.74 that Wall Street was expecting. Other bright spots include e-commerce sales, which were up 24% in the US and advertising revenue, which jumped 38%.
Walmart also saw a boost in their membership income, which was up 17% so people are signing up for Walmart Plus, which I have by the way, it's a great service. So on the surface, the numbers were great, but there was one ugly metric. Comparable sales grew just 2.6% for the quarter, which would be Walmart's slowest quarterly growth in more than six years and below expectations. Now there is one important caveat here. There's a new federal drug pricing rule that caps drug prices and that hurt Walmart's pharmacy business. So if you strip out the health and wellness business, US. Comparable sales actually grew 3.4%, but that was still well below expectation. And that's raising red flags about the health of the American consumer. Now Walmart is like the bellwether for how consumers are doing because 90% of the US population lives within a 10-mile radius of a Walmart. And Walmart management said that shoppers made the same number of trips, but they spent less per trip, especially lower income shoppers that are feeling stretched thin by high gas prices. On the flip side, Walmart continues to gain market share with higher income households earning over $100,000 a year who are trading down for value. Now Walmart plans to double down on value and lower prices. You know, there's an interesting tariff angle here. Walmart said they are receiving $2.9 billion in tariff refunds from the US government, and management says they plan to use that money to lower prices rather than just pocket the benefit. Those price cuts should become more noticeable this quarter, so we'll see if that ends up boosting sales. By the way, we're gonna talk more about tariff refunds near the end of the show. But overall, I think Walmart is in a decent spot here, and I'm not too concerned about the health of the American consumer just yet. You know, we talked about Target's earnings yesterday, and they're seeing a jump in sales. So I don't think there's a broad slowdown in consumer spending. I think Walmart is becoming a much more interesting company than just a big store that sells cheap stuff. They're building these high margin businesses around advertising and membership and marketplace sales and delivery. They're basically trying to become Amazon, but they also have a massive storefront footprint with over what, 4,000 stores in the US. And I think the market sees that potential from Walmart, which is why Walmart trades close to 40 times forward earnings, which is actually a higher multiple than Amazon. But when you trade at such a valuation, expectations become really high and Walmart missed the mark this quarter. And that's why the stock is down more than 7% this morning at the time of this recording. Let me know in the comments of what you guys think. Do you think this earnings from Walmart is a red flag or just a blip?