Wall Street had another black session on Wednesday, one of the worst since 2020, starting the day after a rally from a series of bad announcements from major retailers, which raised fears for consumption and corporate profits.
The Dow Jones index plunged 3.57% to 31,490.97 points, according to the final results.
The Nasdaq fell 4.73% to 11,418.15 points, sinking as much as 5% shortly before the close. The tech-heavy index is now 30% below its peak. The S&P 500 lost 4.03% to fall below 4,000 points to 3,924.18 points.
The dramatic drop in shares of Target supermarkets (-24.87% to $161.73) – a rare magnitude of depreciation in the retail sector – caught the attention of investors, as it showed how much the increase in prices is beginning despite consumption and corporate profits.
The chain suffered a halving of its quarterly profit and its boss, Brian Cornell, complained about cost increases. He warned that sales will fall in 2023. Fuel and freight costs have risen by $1 billion for the group.
“We started the session at half-staff because Target put out these horrible earnings prospects,” LBBW’s Karl Haeling commented.
“Then the market sell-off became self-sustaining and the further the indices fell, the more the market became concerned about issues of future earnings, operating margins, recession, etc,” he continued.
The collapse of Target, a mid-range chain store, echoed the disappointing results of Walmart (-6.84% to $122.36), the number one most popular discount retailer among the low-income, which which worried investors the most.
“People are buying less and less expensive products and are turning more and more to private label products,” said Gregori Volokhine, citing the words of chain store management.
“The low-income is Walmart, the middle-income is the people who shop at Target, so it’s moving up the pyramid,” the Meeschaert analyst said, referring to the impact of inflation on consumer spending.
“The reality is not very good for consumption, we have to face it,” he added.
Other brands paid the price, with Costco, the wholesaler, losing 12.45% to $429.40, Best Buy, the electronics specialist, also losing nearly 11%, while $1 retail chain Dollar Tree fell. 14.42%.
The eleven sectors of the S&P 500 sank into the red starting with non-essential goods and services (-6.60%), a drop rarely seen, and information technology (-4.74%).
Big names in tech plummeted, including Amazon (-7.16% to $2,142.25), Apple (-5.64% to $140.82), Netflix (-7.02% to $177.19).
After seven weeks of losses and this new brutal fall, the Nasdaq, which includes several technology stocks, returned to its level of November 2020. The flagship Dow Jones stock index and the S&P 500, more representative of the US market, are the lowest from March 2021.
“Today’s sell-off has to do with the ability of companies to pass on higher costs. We asked ourselves the question, well, we had the answer somehow with the results” of Target in particular, explained Quincy Krosby, chief strategist at LPL Financial.
“Of course consumers are still spending, but many major retailers are unable to pass on labor costs and higher prices driven by a still constrained supply chain,” he said.
According to her, “growth fears hang over the market intermittently and have intensified as we begin to price in a deeper slowdown.”
Yields on 10-year Treasury bills fell reflecting purchases of safe-haven bonds, whose price rises when their yields fall. They stood at 2.87% compared to 2.99% before the opening of the market.
“It seems that we have not hit bottom,” lamented Karl Haeling. “It’s almost a little disappointing to see that the VIX volatility index hasn’t blown up more, as if the panic, the big panic, hasn’t hit yet,” he said. The barometer, known as the “fear index”, hovered around 30 points, falling below its level in early May.
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