"The market has a yoke around its neck and it's not quite sure how tight it is," CNBC contributor Karen Firestone said on our air Tuesday, summing up the uncertain state of the economy. The earnings news has been mixed. Coca-Cola was good; General Electric was good; 3M was good. It's encouraging that two big global industrials were generally positive. And then, there's Walmart 's announcement. The key takeaway for investors was to refocus attention on inflation, and that it's not just the direction of inflation — it's the magnitude. Walmart lowered its second-quarter and 2022 profit guidance because inflation is causing its core shoppers to spend more on food products (which have lower margins) while reducing their outlays on general merchandise (which have higher margins). But we knew that. Target made essentially the same announcement some time ago, and announced markdowns as well. What surprised the Street, as Telsey Advisory Group's Dana Telsey noted this morning, is that "the magnitude of the decline at Walmart (and previously at Target) has been higher than anticipated." Walmart guided second-quarter earnings down 8% to 9%, so analyst estimates for the second quarter — which had been at around $1.81 per share — are now $1.66 and will likely come down into the low $1.60 range. Total 2022 earnings are expected to fall 11% to 13%. If there is any silver lining, it's that the retail giant did cite a strong back-to-school season and raised its sales guidance. The broader issue is how far is inflation changing overall consumer spending habits? How far from Walmart's base of customers does it go? "In our recent call with the company, we observed the remark that the impact of inflation on consumers' shopping habits continues to broaden and reach into broader demographics versus the relatively isolated impact observed in Q1," Atlantic Equities retail analyst Daniela Nedialkova said in a note to clients. It's fair to say that this will likely accelerate markdown across retail. More broadly, this will also lead to Wall Street momentarily refocusing its attention. While concerns about the magnitude of a slowing economy have occupied Wall Street's attention for weeks, inflation is still the number one issue. I say "momentary" because the Walmart announcement will not erase the debate about the strength of the U.S. economy. I noted last week that the phrase "mild recession" had become a meme as a way to price in a recession without making it sound too bad. Even JPMorgan's Marko Kolanovic jumped on the "mild recession" bandwagon, telling investors Monday that "a mild recession appears already priced in." We haven't even had the Federal Reserve finish with their rate hikes, and already investors are supposed to be living in 2023, post-recession. "With the peak in Fed pricing likely behind us, the worst for risk markets and market volatility should already be behind us," Kolanovic said. Still, the Street keeps pushing the idea that the market has dropped enough. "We think that down 20% in the market is sufficient damage," Firestone said this morning.