In a notable turn of events, the S&P 500 index, which has been on an impressive upward trajectory, faced a setback last Thursday after hitting its all-time highs for two consecutive daysThe dip was largely attributed to disappointing guidance from retail giant Walmart, raising eyebrows about the broader economic outlookAs a consequence, investors began to offload some of their favorite stocks, leading to an overall downturn in the market.

On the day of reckoning, the Dow Jones Industrial Average experienced a significant drop of 450.94 points, closing at 44,176.65, representing a decline of 1.01%. The S&P 500 subsequently fell by 0.43%, ending at 6,117.52, while the Nasdaq Composite dimmed slightly with a decrease of 0.47%, closing at 19,962.36.

Walmart, a heavyweight in the Dow, saw its stock price tumble by 6.5%. The retailer indicated that it anticipates a sales growth of only 3% to 4% for the fiscal year, a figure that fell short of analysts’ expectationsEven though Walmart reported better-than-expected earnings for the fourth quarter, the disappointing outlook for earnings in fiscal 2026 overshadowed these results, illustrating the delicate balance between short-term gains and long-term projections.

In stark contrast, Chinese concept stocks saw a rallyThe Direxion Daily Chinese Bull 3X Shares ETF (YINN) surged by 5.94%, while the iShares MSCI China ETF (MCHI) climbed by 1.86%. The Nasdaq Golden Dragon China Index (HXC) and the Wind China Tech Leaders Index (DRAG) also recorded gains of 1.60% and 3.31%, respectively.

The reaction from the investment community was pronounced

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Tom Fitzpatrick, a managing director at R.JO'Brien & Associates, articulated a broader concern, highlighting, "If Walmart gives a poor guidance, you should take noteIt may indicate that the spending power of the average consumer is running thin."

Following Walmart's announcement, shares for retailers like Target and Costco also dipped by approximately 2%, as fears regarding future profitability grew among investors.

Investor sentiment was further clouded by a drop in stock price for Palantir, a favorite among retail investors, which fell by 5.2% and recorded a loss of more than 10% for the weekThis decline was partly driven by reports that Defense Secretary Peter Hegseth advised department officials to prepare for budget cuts, along with CEO Alex Karp’s new trading plans, which also placed downward pressure on the stock price.

The broader economic concerns, exacerbated by the Conference Board's announcement of an unexpected contraction in the Leading Economic Index for January, amplified the market's apprehensionThe yields on U.STreasury bonds fell, and stocks in major banks such as Goldman Sachs and Morgan Stanley retreated, reflecting a cautious atmosphere.

Alberto Musalem, the president of the StLouis Federal Reserve, joined other Federal Reserve officials expressing the need for a more cautious approach to interest rates this year amidst climbing uncertaintyIn a speech, Musalem acknowledged the economy's stability, the robustness of the labor market, and an inflation rate gradually returning to the Fed's 2% target.

“Moving forward, I expect inflation to continue aligning with the Federal Open Market Committee's 2% target, while the labor market remains close to full employment,” he stated. “This baseline scenario requires monetary policy to remain moderately restrictive until inflation converges, at which point the policy rate can gradually decline to neutral levels as progress is made.”

// Alibaba Earnings //

On February 20, Alibaba reported its earnings for the quarter ending December 2024, revealing revenue of RMB 280.15 billion (approximately USD 40.3 billion), an 8% increase from the prior year and surpassing estimates of RMB 277.37 billion

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The adjusted EBITDA for the quarter was RMB 62.05 billionNet profit attributable to ordinary shareholders stood at RMB 48.945 billion (USD 6.705 billion), and the diluted earnings per American depositary share was RMB 20.39 (USD 2.79), compared to RMB 2.55 (USD 0.35 or HKD 2.75). The non-GAAP diluted earnings per American depositary share reached RMB 21.39 (USD 2.93), reflecting a 13% increase year-on-year.

Highlighting its various business units, the Taobao Group reported a 9% increase in customer management revenue, while the Cloud Intelligent Group saw revenue rise by 13%. Notably, AI-related product revenue achieved triple-digit growth for six consecutive quartersThe Alibaba International Digital Business Group enjoyed a robust 32% year-on-year revenue increase, demonstrating the strength of their offerings in that space.

Despite facing challenges with the Cainiao Group, whose revenue decreased by 1%, the Local Life Group rose by 12%, totaling RMB 16.988 billion (approximately USD 2.327 billion), attributed to increased order volume from Amap and Ele.me and growth in marketing services revenueFurthermore, for the Cloud Intelligent Group, revenue reached RMB 31.742 billion (USD 4.349 billion), a 13% year-on-year increase.

The report also disclosed that Alibaba successfully repurchased approximately 119 million shares of common stock for a total consideration of USD 1.3 billion, equating to 15 million American depositary sharesAs of December 31, 2024, Alibaba still retained a buyback capacity of USD 20.7 billion under the board's authorized repurchase plan, valid until March 2027.

Since the beginning of 2025, Alibaba’s stock has significantly appreciated, with a cumulative increase of 48.35% as of the market close on February 19. Analysts at JPMorgan attribute this uptick primarily to three factors: a reassessment of Alibaba Cloud's valuation, particularly concerning its advancements and potential returns in the generative AI sector, alongside its leading position in China's cloud market; increased revenue expectations for Alibaba Cloud in light of rising AI-driven consumption; and an improved e-commerce landscape in China, which is poised to enhance Alibaba's profitability.

JPMorgan estimates that Alibaba Cloud's revenue is expected to grow by 10% in fiscal 2026, and this projection could be adjusted upwards by 10 percentage points

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