Wall Street accelerates decline after the previous day’s bounce, fearing consumption – 05/18/2022 at 18:21


The New York Stock Exchange accelerated its decline mid-session on Wednesday, potentially wiping out gains from the previous day’s substantial rebound due to profit taking and the announcement of disappointing results from distribution companies that worry about consumption, the engine of the US economy.

Around 1600 GMT, the Dow Jones lost 2.42% and the heavily tech-colored Nasdaq fell 3.32%, while the S&P 500 shed 2.60%.

On Tuesday, the indices bounced back on technology and deal attractiveness after seven weeks of losses for the Nasdaq.

The Dow Jones gained 1.34% to hit 32,654.09, the Nasdaq jumped 2.76% to hit 11,984.52 and the S&P 500 rose 2.02% to hit 4,088.85.

“U.S. stocks tumble on disappointing results from Target and weaker-than-expected earnings from Lowe’s, with both retailers warning of mounting price pressure,” analysts at Schwab said.

The impressive drop in Target Supermarkets (-25% to $160) – a rare depreciation in the retail sector – caught the attention of investors, as it showed how price increases are starting to affect consumption and corporate profits.

The chain said its quarterly profit was halved, and its boss Brian Cornell complained about the increase in costs. He warned that sales would drop in 2023. The cost of fuel and freight for the group jumped by a billion dollars.

“Having said that, distribution bosses will face a huge loss of credibility!” worries Grigory Volokhin of Meeschaert Financial Services. “This is the biggest drop in stocks since 1987,” the analyst said.

Investors were also digesting statements on Tuesday by US central bank (Federal Reserve) Governor Jerome Powell, who, as National Securities’ Art Hogan put it, “left no doubt about the Fed’s determination to curb inflation by raising rates or doing something else.”

“Mr. Powell also acknowledged that it would be painful – perhaps with a slight rise in the unemployment rate – but it was worth it because he believes that price stability is the backbone of the economy,” the analyst said again.

The president of the monetary institution confirmed in a conversation with the Wall Street Journal that the central bank will sharply tighten its monetary conditions until there is “clear evidence” of slowing inflation.

According to Spartan Capital’s Peter Cardillo, “the decline in the indexes reflects a combination of factors, including profit-taking by investors, bad news from companies and a poor performance due to the fall in the number of homes under construction.”

The collapse of Target, a mid-range chain of stores, echoed the disappointing performance of Walmart, the number one discount retailer more popular with lower-income people, which has more worried investors.

“People are buying less expensive products and are increasingly turning to white-labeled products,” said Grigory Volokhin.

“Low incomes are Walmart, middle income people are people who buy at Target, so they move up the pyramid,” analyst Meeschaert notes.

“Reality is not good for consumption, we have to put up with it,” he added.

Another store brand, Lowe’s, which specializes in home goods, was sanctioned by investors (-5.61% to $183) after also reporting mixed results with a 3% decline in quarterly sales.

In China, Prime Minister Li Keqiang called for “urgent” support for the country’s struggling economy. On Wednesday, he urged local authorities to “increase the sense of urgency” and take new measures to support the national economy, which has been hit by restrictions imposed against COVID-19.

Yields on 10-year Treasury bonds fell sharply, reflecting the purchase of safe-haven bonds that rise in price when their yields fall. They amounted to 2.91% against 2.99% before the market opened.