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“What’s Walmart? Do they sell like wall stuff?” — Paris Hilton

Chart of the Day

Good morning!

The resiliency of U.S. consumers is constant and beyond admirable. But whether that dependable trend survives yet another round of price increases—starting big with Walmart—will arguably serve as the most important test for markets this year. 

When Covid-19 upended global supply chains, price increases followed. Thanks to stipends, high wage growth, and an overall hot labor market, consumers were able to swallow those higher prices with no problem. Their spending on everything from furniture to treadmills and then toward concerts and vacations powered the economy by contributing to higher revenues for corporations. 

But now they’re showing signs of strain, so it’s not the best time for Walmart passing through costs from tariffs. Consumers are struggling to switch jobs, pay raises are far and few between, and remote work is under attack, arguably cutting into paychecks. Meanwhile, artificial intelligence is threatening to make some jobs obsolete. 

Nearly 19 out of 20 Americans visit the retailer at least twice a year, so it’s safe to say any price increases the retail giant imposes will touch many consumers. That’s why the retailer’s a good gauge for forecasting consumers’ ability to absorb. 

Thus, Walmart’s results in the next couple of quarters will be arguably more important to watch than the news of the U.S. debt downgrade yesterday. (Markets agree with me on this, given that major indexes closed in the green.)

Walmart CFO John David Rainey told CNBC that the retailer will absorb some of the tariff-related higher costs, and he expects suppliers to absorb some higher costs, too. Despite that, he added, “We have not seen price increases at this magnitude, in the speed in which they’re coming at us before, and so it makes for a challenging environment.”

Its shares are up 9% this year, while the S&P 500 is up 1.6%.

Walmart’s hallmark trait is to keep prices low. That’s why it sources its electronics and toys from China and partly why its produce, including avocados and bananas, come from Central and South America.

It’s far from the only one to raise prices. Microsoft has increased the prices of its game consoles, so has Barbie-maker Mattel and Ford on a few of its models. Retail earnings this week from Target will shed more light on whether others are planning the same. Home Depot this morning said plans to keep prices steady.

The increases are worrying but not worrying enough until those prices seep through into inflation. That’s because higher prices are a mentality thing. Companies back in 2021 and 2022 realized that they could keep prices higher without losing consumers, so those increases didn’t go away for the most part in 2023 and 2024, even though supply chains had mostly been normalized by then. Maybe the increases in 2025 will build on that legacy. 

It may help, however, that this time, the president is quick to scold companies for not eating the tariffs, as seen in the case of Walmart. Amazon, too, received similar feedback from the president for reportedly planning to disclose price increases due to tariffs. 

Maybe that will be enough to deter companies. Or maybe, it’ll just motivate them to devote more time toward coming up with creative ways to justify higher prices without blaming them on tariffs. Apple’s working on that, according to the Wall Street Journal’s reporting. 

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📧✍️Here’s what a reader commented📧✍️

Question: Is the U.S. defense industry under threat, or is its No. 1 position secure?

Answer: In addition to the EU defense manufacturers, we should also remember that the US defense complex has manufacturing capabilities within the EU, specifically for the EU market. This could potentially create a beneficial scenario for all the defense industry players involved.

Catch up with FS Insight

As we discussed Sunday, we did not see much signal from Moody’s downgrade. Thus, equities closed green after opening down more than -1%. To us, this reveals how underexposed investors are. And this keeps pullbacks shallow.

Technical

Treasuries and the US.. dollar look to be close to inflection points, which could drive both yields and the U.S. dollar back to new monthly lows.

Crypto

Bitcoin just logged a stealth all-time high weekly close, and ETH is showing signs of relative strength. We also break down the renewed optimism around the Senate’s stablecoin bill and why it could unlock broader crypto legislation.

News We’re Following

Breaking News

• Home Depot Plans to Keep Prices Steady Despite Tariffs WSJ

Markets and economy

• Retail investors bought the most stocks for a morning ever on Monday after Moody’s downgrade CNBC
• Japan’s long-term borrowing costs hit record high on demand fears FT
• Forget the U.S. Downgrade. Here’s What Really Matters to the Market. BR
• The U.S. Lost Its Perfect Credit Rating. Who Still Has It. BR

Business

• Tesla Sets Record With $139 Million Pay Package for Finance Chief WSJ
• Chinese battery maker CATL surges 16% in biggest listing of 2025 FT
• Nvidia just made this ‘very smart move’ that could pay off big-time down the road MW

Politics

• Migrant Labor Force Withstands Mass-Deportation Push WSJ
• Donald Trump’s ‘big, beautiful’ tax bill heightens concerns over US debt FT
• The Inside Story of Trump’s Search for a New Air Force One NYT

Overseas

• The Tech Industry Is Huge—and Europe’s Share of It Is Very Small WSJ
• Israel is letting a trickle of aid into Gaza for the first time in 2 1/2 months. Here’s what to know AP

Of Interest 

• USTA to invest $800 million in US Open facilities in New York CNBC
• Bill Belichick Was Always in Control. Then He Met His Gen Z Girlfriend. NYT
• SAG-AFTRA files unfair labor practice charge over use of AI to make Darth Vader’s voice in Fortnite AP