Stocks fall sharply as Target’s woes renew inflation fears
NEW YORK — The Dow Jones Industrial Average sank more than 1,100 points and the S&P 500 had its biggest drop in nearly two years Wednesday, as big earnings misses by Target and other major retailers stoked investors’ fears that surging inflation could cut deeply into corporate profits. The broad sell-off erased gains made during a solid rally the day before. This was the latest volatile day-to day swing in stocks due to a worsening market slump.
The S&P 500 tumbled 4%, its sharpest decline since June 2020. The benchmark index is now down more than 18% from the record high it reached at the beginning of the year. That’s shy of the 20% decline that’s considered a bear market.
The Dow fell 3.6% and the Nasdaq dropped 4.7%. The Dow and Nasdaq are on track to continue a string of at most six weekly losses.
” “A lot of people trying to guess where the bottom is,” stated Sam Stovall (chief investment strategist at CFRA). “Bottoms occur when there’s nobody left to sell.”
The S&P 500 fell 165. 17 points to 3,923. 68, while the Dow slid 1,164. 52 points to 31,490.07. The Nasdaq slid 566. 37 points to 11,418.15.
Smaller stock prices also dropped sharply. The Russell 2000 fell 65. 45 points, or 3.6%, to 1,774.85.
Retailers were among the biggest decliners Wednesday after Target plunged following a grim quarterly earnings report.
Target lost quarter of its value following disappointing quarterly earnings reports that were far below analysts’ expectations. Target reported a 5.3% operating margin in the first quarter, a sign of inflation’s impact on shipping costs. Target had expected 8% or more. The company said that consumers have returned to their normal spending habits and are buying less TVs and appliances, and more toys and travel-related products. The report comes after Walmart reported that its profit suffered from higher costs. The nation’s largest retailer saw its profit drop 6.8%, adding to Tuesday’s losses.
The weak reports raised concerns that rising inflation is putting more pressure on businesses and could result in lower profits.
“These retailers have to balance how much higher inflation they pass on to consumers and how much they eat. This raises questions about profitability for companies and can lead to questions about market valuations,” stated Willie Delwiche (investment strategist at All Star Charts).
Other big retailers also suffered significant losses. Dollar Tree fell 14.4% and Dollar General slid 11.1%. Best Buy fell 10.5% and Amazon fell 7.2%.
Technology stocks, which led the market rally a day earlier, were the biggest drag on the S&P 500. Apple lost 5.6%, its biggest decline since September 2020.
All told, more than 95% of stocks in the S&P 500 closed lower. Utilities fell, though not nearly as much as the other 10 sectors, as investors shifted money to investments that are considered less risky.
Bond yields declined as investors moved money to lower-risk investments. The yield on the 10-year Treasury fell to 2. 88% from 2. 97% late Tuesday. Target’s disappointing report comes just days after the Commerce Department released an encouraging report that showed retail sales rose in April. This was due to higher sales of electronics and cars, as well as more spending at restaurants. As investors have concerns,
Stocks has been struggling to get out of a slump for six weeks. Investors are closely monitoring data on consumers and retailers to see if inflation is affecting their trading. An increase in spending could indicate slower economic growth.
“Consumers continue to spend. However, many top retailers are unable pass on the higher labor costs and higher prices caused by a constrained supply chain.” Quincy Krosby is chief equity strategist at LPL Financial.
Target stated that its freight costs this year will be $1 billion more than it estimated three months ago. Target and Walmart both provided evidence that inflation is weighing consumers. They said they have resisted buying big-ticket items and switched to cheaper store brands.
The Federal Reserve is trying reduce the impact of the highest inflation rate in 40 years by raising interest rates. Jerome Powell, Fed Chair, stated Tuesday at a Wall Street Journal conference “that the U.S. central banking will have to consider moving more aggressively” in case inflation does not ease after previous rate increases.
Investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly. Worries persist about global growth as Russia’s invasion of Ukraine puts even more pressure on prices for oil and food while lockdowns in China to stem COVID-19 cases worsens supply chain problems. The United Nations has significantly reduced its global economic growth forecast this year, from 4% down to 3.1%. This downgrade is broad-based and includes the largest economies in the world, such as the United States, China, and the European Union.
Veiga reported from Los Angeles.
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