The Fed’s policies to curb inflation are a long-term win for the U.S. economy, but investors in companies like Walmart are now paying the price, CNBC’s Jim Cramer said Thursday.
U.S. retail giants, cybersecurity firm Palo Alto Networks and energy giant Chevron all saw their stock prices drop significantly on Thursday for reasons that can be traced back to the Federal Reserve’s interest rate hikes, Cramer said.
“It’s nice to say goodbye to inflation, but there’s also a little bit of temporary sadness,” Kramer said. “That’s the sadness of Walmart and Chevron and Palo Alto Networks and so many other companies that are victims of their own success.”
Walmart stock plunged 8% Thursday after the company released quarterly results before the bell. Although sales and bottom line results beat expectations, Walmart’s same-store sales, a closely watched metric in the retail industry, slowed for the third consecutive quarter.
Mr. Kramer said one of the reasons for that slowdown is the emergence of deflation. He said same-store sales were boosted by Walmart’s ability to pass on its own higher costs to shoppers through higher prices when inflation was rampant. Additionally, Cramer said Walmart is grappling with more cautious consumers who have seen their budgets squeezed by inflation for more than a year.
Meanwhile, Palo Alto Networks stock fell 5.4% on Thursday after the company’s earnings report disappointed investors the night before. The main problem was that Palo Alto lowered its full-year billing outlook, with management claiming higher borrowing costs were forcing customers to take short-term contracts. Kramer explained that the reason borrowing costs are rising is because the Fed’s interest rate hikes are making money more valuable.
Cramer’s Charitable Trust, a portfolio used by CNBC Investing Club, owns Palo Alto stock.
Meanwhile, Chevron stock fell 2.6% on Thursday as oil prices plummeted. Commodities have been on a downward trend for weeks amid concerns about demand. Chevron and its energy companies benefited from high oil prices last year, but Cramer said the drop in oil prices was a direct result of the economic slowdown. And that’s exactly what the Fed wants, he said.
“The good news that falling prices are finally breaking the inflationary spiral is also bad news for many companies’ profits,” Cramer said. “It will take some sorting out, but don’t ever believe that lower consumer prices are just a magic pill for long-term stock market gains.”