US Equities slump as retailers ghost investors

The stock markets dropped on Wednesday, extending their run this year as earnings from retailers including Target and Walmart reinforced concerns about the health of the US economy.

The sharp declines were sparked after retailers warned they were facing higher costs and slowing sales, both of which were eating into their profit margins. The Dow Jones Industrial Average tumbled over 1,000 points, while the S&P 500 fell more than 3%. The Nasdaq sank more than 4%.

They represented the latest in a series of corporate results and economic indicators showing how inflation is starting to dent the economy’s prospects.

On Wednesday, Target said earnings fell for the first three months of the year compared to 2021. The company said its had been hit hard by supply chain issues and higher fuel costs, and although consumers continued to spend, they were buying fewer expensive items, like televisions. Target said it is not raising prices but is absorbing the costs, even if they are hitting its bottom line.

“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target Chairman and CEO Brian Cornell said in a statement accompanying the earnings report.

Target shares slumped over 25%, heading to its worst performance in percentage terms since the 1987 stock crash.

Price pressures also affected Walmart, the world’s largest retailer, which reported earnings on Tuesday. President and CEO Doug McMillon told Wall Street analysts on a conference call the company had to navigate a number of challenges in the first quarter of the year, including higher labor costs due to overstaffing and issues with inventory.

“We’re not happy with the profit performance for the quarter, and we’ve taken action, especially in the latter part of the quarter, on cost negotiations, staffing levels, and pricing, while also managing our price gaps,” McMillon said. Walmart’s stock is trading down for the second day in the row.

The earnings reports added more fuel to Wall Street’s fears about higher prices, which have risen at their fastest pace in decades. That’s raising concern the Federal Reserve won’t be able to get high inflation under control without tipping the US economy into a recession.

The Fed has raised interest rates at its last two meetings, and Fed Chair Jerome Powell and his colleagues have signaled they will raise rates aggressively going forward.

The issue is that the effects of the higher rates won’t be known for a while, keeping markets in a continued state of uncertainty.