Stocks tumble as retail profits bolster inflation fears: NPR
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Stock markets fell again on Wednesday, extending their miserable run this year as earnings at retailers including Target and Walmart heightened concerns about the health of the U.S. economy.
The Dow Jones Industrial Average fell 1,164 points – its biggest drop since June 2020, while the S&P 500 fell 4%. The Nasdaq fell 4.7%.
The sharp declines were triggered by a warning from retailers that they faced higher costs and slowing sales, both of which ate away at their profit margins.
They were the latest in a series of corporate results and economic indicators showing how inflation is starting to weigh on 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 had been hit hard by supply chain issues and rising fuel costs , and although consumers continued to spend, they were buying fewer big-ticket items, such as televisions.
Target said it was not raising prices but absorbing the costs, even if they hit its bottom line.
“Throughout the quarter, we faced surprisingly high costs, driven by a number of factors, which resulted in profitability well below our expectations and well below what we expect to operate. over time,” Target President and CEO Brian Cornell said in a statement. statement accompanying the results report.
Target fell nearly 25% for its worst percentage performance since the 1987 stock market crash.
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Walmart is also under pressure
Pricing pressures also affected Walmart, the world’s largest retailer, which reported results on Tuesday.
Chairman and CEO Doug McMillon told Wall Street analysts on a conference call that the company faced a number of challenges in the first quarter of the year, including labor costs – higher labor due to overstaffing and inventory issues.
“We are not satisfied with the earnings performance for the quarter, and we took action, particularly in the latter part of the quarter, on cost negotiations, staffing levels and pricing, while managing our spreads of price,” McMillon said. .
Walmart shares are trading for the second day in a row.
Earnings reports fueled fears on Wall Street about rising prices, which rose at their fastest pace in decades. This raises fears that the Federal Reserve will not be able to rein in high inflation without tipping the US economy into a recession.
The Nasdaq, which is in bearish territory, is down almost 28% this year, and the Dow is down almost 14%. The S&P is down 18.2%.
The Fed has raised interest rates at its last two meetings, and Fed Chairman Jerome Powell and his colleagues have signaled that they will raise rates aggressively going forward.
The problem is that the effects of higher rates will not be known for some time, which will keep markets in a state of continued uncertainty.
“We’re in a bit of a wait-and-see situation,” said Kate Moore, head of thematic strategy for global allocation at BlackRock. “We think we’re going to have to wait a bit longer for better and more consistent economic data so that the effects of higher rates and tighter monetary policy trickle down to the economy.”