Dow skids 1,200 points as rising costs weigh on retailers’ earnings

Posted On : Published By : Tom Whipple

Wall Street recoiled Wednesday as Target and other national retailers got swept into a staggering sell-off — slashing more than 1,100 points off the Dow — as rising costs eat into business performances and spark fears of a broader economic downturn.

Market volatility has been closely aligned with the tech giants in recent weeks, but now attention has shifted to retailers as investors consider the myriad ways inflation can strap their businesses, from soaring fuel expenses to swelling payrolls.

Target’s shares slumped more than 25 percent after it reported that net profit shrank 52 percent in the first quarter. The retail giant cited supply chain pressures and surging expenses, echoing concerns voiced by rival Walmart, which on Tuesday suffered its worst day of trading in more than three decades after it recorded weaker-than-expected earnings and warned that its customers were paring back amid budgetary pressures.

Other retailers followed suit: Dollar Tree shares swung 14.4 percent lower, while Costco’s shares cratered 12.5 percent and Dollar General’s fell 11.1 percent.

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

Neil Saunders, managing director of GlobalData Retail, said that investors are getting spooked as evidence mounts that the economy is heading into a more challenging cycle.

“Retail results clearly show that we’re moving from an era of high growth into a more constrained consumer economy,” Saunders said. “Ultimately, that squeezes the bottom line. Investors are concerned because they don’t see the issues resolving anytime soon so the growth prospects are weaker going forward.”

The shaky retail performances bring new dynamic to the sea of volatility investors have had to navigate in 2022, including war in Ukraine and its myriad consequences, supply chain headaches, roaring inflation and the ongoing challenges of the pandemic.

Retail sales edged up 0.9 percent in April according to the Commerce Department, suggesting inflationary concerns aren’t sidelining consumers just yet, even as staples like gas and groceries become more costly.

Fuel prices have been rising at a record pace, with the national average hitting $4.56 a gallon on Wednesday, a fresh all-time high according to data tracked by AAA. This time last year, it was $3.04. And this week, for the first time, the average price topped $4 in every U.S. state.

There’s no immediate relief in sight, Treasury Secretary Janet L. Yellen cautioned Wednesday. She warned of the potential for slower growth to combine with inflation worldwide: “Higher food and energy prices are having stagflationary effects, namely depressing output and spending and raising inflation all around the world,” she told reporters during a news conference in Bonn, Germany, ahead of Group of Seven finance ministers meetings this week.