The stock market selloff resumed on Wednesday amid reinvigorated fears about surging inflation weighing on economic growth, as several major retailers have now reported that quarterly profits took a hit due to rising cost pressures.
The selloff on Wall Street intensified by the afternoon: The Dow Jones Industrial Average fell 2.5%, over 800 points, while the S&P 500 lost roughly 3% and the tech-heavy Nasdaq Composite 3.5%.
Markets tanked after disappointing quarterly earnings from major retailers: Shares of Target plunged 25% after the company warned of rising costs and supply chain issues impacting profits, with the stock on pace for its worst single-day drop in roughly 25 years.
The news followed a gloomy outlook from Walmart on Tuesday, with the nation’s largest retailer badly missing earnings expectations due to rising costs, causing shares to fall 11% in their largest one-day drop since 1987.
Both results are weighing heavily on markets Wednesday—with the S&P 500 Retail ETF falling more than 5%—amid fears that American consumers are feeling the impact of surging inflation.
Other major retailers—many of which have upcoming quarterly earnings in the next week—saw their stocks plunge: Best Buy, Dollar General, Dollar Tree, Macy’s and Kohl’s all fell by 8% or more.
The market declines come after stocks mounted a small comeback on Tuesday when the Dow jumped 400 points after Federal Reserve Chair Jerome Powell said the central bank “won’t hesitate” to keep raising rates until they see inflation moderate to healthier levels.
“The tax of inflation is being felt most by the retailers as two of the nation’s largest retailers have gotten absolutely destroyed in the last two days,” according to a note from Bespoke Investment Group. “If you thought yesterday’s 11% pounding of Walmart was bad, meet Target.”
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“The experiences of both companies further reinforce the point that we are operating in one of the most complicated macro environments that any company or investor has had to deal with,” says Bespoke. If Walmart and Target are “having these types of issues keeping up with the rapidly changing environment, who isn’t?”
“It’s understandable that investors would feel quite gloomy given the steep post-earnings declines in Walmart and now Target shares,” says Vital Knowledge founder Adam Crisafulli. He argues that it’s “not accurate to simply say ‘the consumer has to be weakening if both these companies are blowing up,’” as the reality with consumer spending is “far more nuanced and not nearly as negative.” Consumers remain “relatively healthy” and most retail management teams still see solid levels of spending overall, Crisafulli points out.