Stocks drop sharply as target problems renew inflation fears

NEW YORK – The Dow Jones Industrial Average plunged more than 1,100 points and the S&P 500 saw its biggest drop in nearly two years on Wednesday, as heavy profit losses by Target and other major retailers fueled investor fears that rising inflation could… Deep into the companies. earnings.

The massive selling erased gains from a strong rally the previous day, the latest volatile daily volatility for stocks in recent weeks amid a deep market slump.

The S&P 500 is down 4%, its biggest drop since June 2020. The benchmark is now down more than 18% from its high at the start of the year. That’s shy of the 20% drop that’s considered a bear market.

The Dow Jones fell 3.6%, while the Nasdaq fell 4.7%. The three indicators are on track to extend a streak of at least six weekly losses.

“A lot of people are trying to guess the bottom,” said Sam Stovall, chief investment analyst at CFRA. “Bottoms happen when there’s no one left to sell.”

The S&P 500 fell 165.17 points to 3,923.68, while the Dow Jones fell 1,164.52 points to 3,1490.07. The Nasdaq fell 566.37 points to 11,418.15.

Shares of smaller companies also fell sharply. The Russell 2000 index fell 65.45 points, or 3.6 percent, to 1,774.85 points.

Retailers were among the biggest losers on Wednesday after Target fell after a bleak quarterly earnings report.

Target lost a quarter of its value after reporting earnings well below analyst expectations. Noting the impact of inflation, particularly on shipping costs, Target said operating margin for the first quarter was 5.3%. She was expecting 8% or more. The company also said consumers are back to more normal spending habits, as they stay away from televisions and devices and buy more toys and travel-related items.

The report comes a day after Walmart said its earnings were hit by rising costs. The country’s largest retailer slipped 6.8%, adding to its losses from Tuesday.

The weak reports raised concerns that ever-increasing inflation is putting tighter pressure on a wide range of companies and could deepen their earnings.

“These retailers have to balance the amount of high inflation that has to be passed on to consumers versus eating, that gets into questions about profitability on the part of companies and that gets into some lingering valuation questions of the market,” Willie Delwich, investment strategist at All Star Charts.

Other major retailers also suffered huge losses. Dollar Tree fell 14.4% and the dollar overall 11.1%. Best Buy shares fell 10.5 percent and Amazon 7.2 percent.

Technology stocks, which led the market rally the previous day, were the biggest drag on the S&P 500. Apple lost 5.6%, its biggest drop since September 2020.

Finally, more than 95% of stocks in the S&P 500 closed lower. Utilities fell, although not as much as the other 10 sectors, as investors shifted their money to investments considered less risky.

Bond yields fell as investors shifted their money to lower-risk investments. The yield on the 10-year Treasury fell to 2.88% from 2.97% late Tuesday.

The disappointing report from Target comes a day after the market welcomed an encouraging report from the Commerce Department that showed retail sales rose in April, driven by higher sales of cars and electronics and more spending at restaurants.

Stocks have been struggling to pull out of the doldrums for the past six weeks as investors build up concerns. Trading has been choppy on a daily basis and any data on retailers and consumers is closely watched by investors as they try to determine the impact of inflation and whether it will lead to a slowdown in spending. A bigger-than-expected hit to spending could point to a further slowdown in economic growth ahead.

“Consumers certainly continue to spend, but many large retailers are unable to move beyond the higher labor costs and higher prices caused by the still-constrained supply chain,” said Quincy Crosby, chief equity strategist at LPL Financial.

Target has warned that shipping costs this year will be $1 billion higher than it forecast just three months ago. Target and Walmart both provided evidence that inflation is weighing on consumers, saying they have stopped buying expensive items and have changed from national brands to less expensive ones.

The Federal Reserve is trying to mitigate the impact of the highest rate of inflation in four decades by raising interest rates. On Tuesday, Federal Reserve Chairman Jerome Powell said at a Wall Street Journal conference that the US central bank “will have to consider moving more aggressively” if inflation fails to ease after previous rate hikes.

Investors are concerned that the central bank could cause a recession if it raises interest rates too high or too quickly. Concerns about global growth remain, as Russia’s invasion of Ukraine puts further pressure on oil and food prices, while a lockdown in China to halt COVID-19 cases exacerbates supply chain problems.

The United Nations has significantly lowered its forecast for global economic growth this year from 4% to 3.1%. The credit rating downgrade is widespread, which includes the world’s largest economies such as the United States, China and the European Union.

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Veiga reported from Los Angeles.

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