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Dow slips 1,200 points as rising costs weigh on retailer revenues

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Wall Street fell on Wednesday as Target and other national retailers were dragged into a staggering selloff, slashing more than 1,100 points off the Dow as rising costs eat away at business performance and raise fears of a broader economic slowdown. .

Market volatility has been closely aligned with tech giants in recent weeks, but the focus has now shifted to retailers as investors consider the myriad ways inflation can dampen their businesses, from soaring fuel costs to the increase in the wage bill.

Targets shares fell more than 25% after announcing that net profit fell 52% in the first quarter. The retail giant cited supply chain pressures and soaring spending, echoing concerns expressed by rival Walmart, which suffered its worst trading day in more than three decades on Tuesday after recording lower-than-expected profits and warned that its customers were shrinking amid budget pressures.

Other retailers followed suit: Dollar Tree shares fell 14.4%, while Costcos shares cratered 12.5% ​​and Dollar Generals fell 11.1%.

The Dow Jones industrial average slipped 1,164.52 points, or 3.6%, to close at 31,490.07. The S&P 500 index fell more than 4%, or 165.17 points, to end at 3,923.68, while the tech-heavy Nasdaq lost 4.7%, or 566.37 points, to end the day. session at 11,418.15.

Neil Saunders, managing director of GlobalData Retail, said investors have been spooked by mounting evidence that consumers are cutting back on spending as retailer costs rise.

The retail results clearly show that we are moving from an era of high growth to a more constrained consumer economy, Saunders said. Ultimately, this compresses the bottom line. Investors are worried as they don’t see the problems solving any time soon, so growth prospects are weaker going forward.

Fragile retail performance added to the sea of ​​volatility that investors navigated in 2022, including the war in Ukraine and its myriad aftermath, supply chain headaches, runaway inflation and challenges persistence of the pandemic.

Retail sales edged up 0.9% in April according to the Commerce Department, suggesting inflation concerns are not yet pushing consumers aside, even as basics like gasoline and groceries become more expensive.

The national average for a gallon of gas hit $4.56 on Wednesday, a new all-time high according to data tracked by AAA. This time last year it was $3.04. Meanwhile, this week, every US state posted averages above $4 for the first time.

On Wednesday, Treasury Secretary Janet L. Yellen warned that immediate relief in gasoline prices remained elusive. She also warned against the possibility that the slowdown in growth is combined with inflation in the world: the rise in food and energy prices has stagflationary effects, namely a fall in production and spending and rising inflation all over the world, Yellen told reporters.

European markets were also down across the board on Wednesday, with the benchmark Stoxx 600 slipping 1% after the UK reported inflation hit a 40-year high of 9%.

The one thing consumers really need are price cuts that aren’t likely for many months, noted Danni Hewson, financial analyst at AJ Bell, in a comment Wednesday. Pressure has mounted for companies to protect consumers from the worst price hikes, and in some cases this has been possible, but not all companies have the kind of cushion that will allow them to eat into their margins.

Much of the recent unease stems from investors’ lack of confidence in the Fed’s ability to lower prices without triggering a recession. On Tuesday, Fed Chairman Jerome H. Powell said the central bank may have to act more aggressively to rein in inflation if there isn’t clear and convincing evidence that pressures are easing.

Tech giants that had been pandemic darlings have exploded as investors unload expensive stocks: Amazon is down more than 26% for the year; Meta, 42%; Peloton, 60%; and Netflix, 70%. (Amazon founder Jeff Bezos owns The Washington Post).

Rising interest rates and weak earnings reports have prompted many investors to prepare for the future by pulling out of the market, Great Waters Financial’s Nick Foulks told The Post on Wednesday. This could however prove to be a reckless move in light of the current volatility which can quickly change depending on the nature of a global stock market.

The Cboes Volatility Index climbed almost 7% on Wednesday. Known as the Wall Street Fear Gauge, the index is up 62% for the year according to MarketWatch.

The Dow is now down more than 12.7% for the year according to MarketWatch, while the S&P is down more than 17%, approaching a bear market. The Nasdaq is down 26%, well within its own bear market, which is defined as 20% from a recent high.

Bear markets are a natural part of the life cycle, stocks go up, they come down, but if one settles now, it would end (at least temporarily) the frantic rally that followed Wall Street’s sudden drop after that the coronavirus for the first time shook the world economy. The broad index has already suffered its worst first four months of the year since 1939, and the pain may continue.

Since World War II, there have been 17 bear markets averaging around a year long according to Ryan Detrick, chief market strategist for LPL Financial. But when bear markets coincide with a recession, losses are larger by almost 35% on average and periods of decline are longer, on average 15 months, he said in a commentary on Wednesday.

If the economy were to avoid recession, the outcome would improve, with losses diminishing and the bear market lasting seven months on average.

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2/ https://www.washingtonpost.com/business/2022/05/18/markets-inflation-stocks-fed-retail/

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