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U.S. stocks ended sharply lower Tuesday as a profit warning by Walmart dragged down retail shares and exceptionally soft consumer confidence data also fueled fears about spending. That same weak market sentiment was evident in Canada as well, where the TSX was dragged down by a 13.6% slump in Shopify shares after the e-commerce company announced major layoffs.

The TSX information technology sector closed 4.6% lower after Shopify fell the most in one day since May. About 10% of its staff, or roughly 1,000 people, will be laid off.

“It is really shining a light on the real growth slowdown that we’re seeing here, in particular in e-commerce,” said James Telfser, portfolio manager at Aventine Investment Counsel.

The Shopify news Tuesday followed Walmart slashing its profit forecast late on Monday as surging prices for food and fuel spurred consumers to cut back on discretionary purchases. Its shares sank 7.6% and the impact was felt elsewhere in the retail sector: shares of Target Corp fell 3.6% and Inc dropped 5.2%, while the S&P 500 retail index declined 4.2%.

Since Walmart is seen as a “litmus test for the health of the consumer,” investors are concerned about growth and feeling uncertain ahead of key economic data due out this week and the Fed’s interest rate decision expected on Wednesday, said Carol Schleif, deputy chief investment officer at BMO Family Office.

“This week is forcing investors to be very short-term oriented. It’s not allowing anybody to lift their eyes up even a week or a month,” Schleif said. “It’s an asset market, not just in stocks, that seems to suggest people think growth is questionable in the intermediate term.”

Data showed U.S. consumer confidence dropped to nearly a 1-1/2-year low in July amid persistent worries about higher inflation and rising interest rates. And adding to Tuesday’s gloom was the International Monetary Fund forecast for global real GDP growth of 3.2% in 2022, down from its 3.6% forecast issued in April. It sees downside risks from high inflation and Russia’s invasion of Ukraine, potentially pushing the world economy to the brink of recession.

Investors are expecting a 75 basis point Fed rate increase on Wednesday, with markets pricing about a 10% risk of a larger hike.

“If they did 100 basis points it would probably surprise the market. There’s that nervousness. If it’s 75, as expected, and the Fed says it’s starting to see hints of slowing, the market might take that as a positive,” Schleif said.

The Dow Jones Industrial Average fell 228.5 points, or 0.71%, to 31,761.54, the S&P 500 lost 45.79 points, or 1.15%, to 3,921.05 and the Nasdaq Composite dropped 220.09 points, or 1.87%, to 11,562.58.

The Toronto Stock Exchange’s S&P/TSX composite index closed down 131.8 points, or 0.69%, at 18,972.68.

The flight to safety lifted Canadian gold miners, with the materials group up 1%. Gold companies OceanaGold Corp , New Gold Inc and Wesdome Gold Mines were the biggest gainers, even as spot gold lost 0.1%.

The energy sector lost 0.7%, weighed by a 1.8% drop in U.S. crude. The United States said it would sell an additional 20 million barrels of crude from its Strategic Petroleum Reserve as part of a previous plan to use the facility to calm oil prices.

A busy week for earnings also included reports from Alphabet Inc and Microsoft Corp after the bell.

Shares of Microsoft were down 0.5% in after-hours trading while Alphabet was up 3% following the companies’ results. Microsoft ended the regular session down 2.7% and Alphabet ended 2.3% lower on the day. 

Also reporting after the bell was Canadian National Railway, which easily beat Street expectations for profit in its latest quarter. U.S.-listed shares were up 5% in the post market.

Investors had been looking to see if this week’s earnings news from mega-cap companies might help the stock market sustain its recent rally. 

Earnings from S&P 500 companies were expected to have risen 6.2% for the second quarter from the year-ago period, according to Refinitiv data.

Also during the regular session, Coca-Cola Co gained 1.6% after the company raised its full-year revenue forecast. McDonald’s Corprose 2.7% after beating quarterly expectations. 

3M Co rose 4.9% after the industrial giant said it planned to spin off its healthcare business. General Electric Co gained 4.6% after the industrial conglomerate beat revenue and profit estimates.

Volume on U.S. exchanges was 9.60 billion shares, compared with the 10.93 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 1.73-to-1 ratio; on Nasdaq, a 1.72-to-1 ratio favored decliners. The S&P 500 posted 1 new 52-week highs and 30 new lows; the Nasdaq Composite recorded 39 new highs and 138 new lows.

Reuters, Globe staff

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