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Stock markets fell again on Wednesday, continuing their miserable streak this year as earnings from retailers including Target and Walmart bolstered concerns about the health of the US economy.
The Dow Jones industrial average fell by 1,164 points – the biggest drop since June 2020, while the S & P 500 fell by 4%. Nasdaq sank 4.7%.
The sharp declines were triggered by retailers warning that they were facing rising costs and slowing sales, both of which were decimating their profit margins.
They represented the latest series of corporate results and economic indicators that show how inflation is beginning to affect the outlook for the economy.
On Wednesday, Target said profits fell for the first three months of the year compared to 2021. The company said it has been hit hard by supply chain issues and rising fuel costs, and while consumers continue to spend, they are buying less expensive items, such as televisions.
Target said it’s not raising prices but absorbing costs, even if it reaches its bottom line.
Chairman of the Board Chief Executive and CEO of Target, Brian Cornell, “During the quarter, we faced the costs of high unexpectedly, driven by a number of factors, which led to the profitability that came much lower than our expectations, much as we expect to work over time and less.” The statement accompanying the earnings report.
The target is down about 25% for the worst performance in percentage terms since the stock market crash of 1987.
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Wal-Mart also under pressure
Price pressures also weighed on Walmart, the world’s largest retailer, which reported earnings on Tuesday.
President and CEO Doug McMillon told Wall Street analysts in a phone call that the company had to face a number of challenges in the first quarter of the year, including rising labor costs due to overstaffing and inventory issues.
“We are not pleased with the earnings performance for the quarter, and we have taken action, especially in the latter part of the quarter, on cost negotiations, staffing levels and pricing, while also managing price gaps,” McMillon said.
Walmart stock is trading lower for the second day in a row.
Earnings reports added more fuel to Wall Street’s concerns about higher prices, which are rising at their fastest pace in decades. This raises the concern that the Federal Reserve will not be able to control high inflation without pushing the US economy into recession.
The Nasdaq, which is in bear market territory, is down about 28 percent this year, and the Dow is down about 14 percent. The S&P is off at 18.2%.
The Fed raised interest rates in its last two meetings, and Federal Reserve Chairman Jerome Powell and his colleagues indicated that they will raise rates aggressively in the future.
The problem is that the effects of higher rates will not be known for some time, which keeps markets in a constant state of uncertainty.
“We’re living a little bit in a wait mode,” says Kate Moore, head of substantive strategy for global allocation at BlackRock. “We think we will have to wait a little bit more time to get better and more consistent economic data for the effects of higher rates and tighter monetary policy to fuel the economy.”