(Reuters) – Wall Street’s stock indexes tumbled more than 3% on Wednesday as a growth share rally reversed amid concerns about economic growth highlighted by a 26% plunge in Target Corp shares after the retailer became the latest victim of surging prices.
Target’s first-quarter profit halved and the company warned of a bigger margin hit on rising fuel and freight costs. Its shares were on track for their biggest fall since the Black Monday crash on Oct. 19, 1987 (Full Story) and came a day after rival Walmart Inc WMT.N trimmed its profit forecast.
Rising inflation, the conflict in Ukraine, prolonged supply chain snarls, pandemic-related lockdowns in China and prospects of aggressive policy tightening by central banks have weighed on the markets recently.
* STOCKS: Dow down 3.36%, S&P 500 down 3.81%, Nasdaq fell 4.51%
GARRETT MELSON, PORTFOLIO STRATEGIST, NATIXIS INVESTMENT MANAGERS SOLUTIONS, BOSTON
“The action we’re seeing today affirms what we think has been underway for a little bit, shifting from an inflation scare to a growth scare. They’re obviously very closely intertwined but the key differentiation or flag for it has been that shift in the correlation between bonds and stocks. You’re starting to see that bid come back into Treasuries when stocks are coming under pressure. That’s what we’re seeing play out here in those retailer disappointments today.
“Today is definitely feeding into that growth scare narrative. When you look at the performance, we’ve already priced in a mild recession but the growth catalysts out there are still far stronger than the market is currently appreciating right now.”
THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL, NEW YORK
“The market is has priced in some of the (economic) slowing and has priced in full rate hikes, assuming Powell stays in line with the plan to end historic tightening cycles, which should take the Fed funds rate probably just over 2% as we saw in the last tightening cycle.”
“I just think the market is on edge because (Powell) came out a little bit hawkish yesterday. As we see, potentially next month, the CPI numbers come in more reasonably because the comps are much higher from last May, the market will start to relax a little bit more. But for now, it’s just a knee jerk reaction to Target and to hawkish rhetoric.”
“What people are worried about after seeing Target is, will more earnings have to be taken down? Or is it a one off event because if you look at overall for the S&P 500 earnings, they’re still going to grow 10% for the year based on where earnings were as of last week.”
DENNIS DICK, TRADER, BRIGHT TRADING LLC, LAS VEGAS
“This is a little bit of a retail apocalypse here today. It was Walmart yesterday and everybody thought it was a one-off. Now that Target misses earnings a lot more than Walmart even did, they’re scared that the consumer is not as strong as everybody thinks it is.”
“Target is a lower-beta stock. When it falls 25% in one day, it turns people off of all stocks because this is a real company with real revenues and to fall 25% in one day is a serious issue for this market and that’s going to spook a lot of investors.”
“Inflation input costs are a major issue for a lot of companies here now and that the consumer isn’t spending as much money as we hope they will. So the Fed’s plan is working. They need to bring inflation in and it will bring it in. But it’s going to be a painful process and forget about a soft landing, I don’t think there’s any chance of a soft landing.”
“Now investors are looking well, what is safe? What should I go in here? I don’t know. Is anything safe at this point in time? If we go into a recession, maybe everything gets hit. So I think investors are re-evaluating risk right now.”
“I think you’ve just got to sell into the strength. You’re going to get easy whipsaw rallies like we saw the last few days and you’ve got to use that to keep raising cash because I think the worst is still ahead of us.”
TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK
“It’s a rather extreme reaction, but it does point out that there are inflation pressures on retailers and there are spending shifts by consumers occurring at the same time.”
“Target losing a quarter of its market cap is a concern for a company that has a strong long-term track record.”
“Overall, when times get tough, when there’s inflation in lots of categories especially in nondiscretionary categories, like gas for your car, the lower income consumers often get squeezed.”
“The consumer is getting squeezed but is not dead by any means. Investors are partially reacting to Target’s big earnings miss and it shows not so much in terms of revenues; where it missed was earnings, and that reflects inflationary pressures.”
“This is not a forgiving market, selling creates more selling. Buyers are demanding much lower prices to get pulled into investments. You’ve had these wild swings both up and down. It’s hard to get investors involved given the volatility and the uncertain economic and geopolitical outlook.”
“Technicians would suggest that (an S&P 500 bear market confirmation) could bring in some buyers, so there may be some resistance. But the fundamentals will continue to deteriorate if there are more earnings announcements like we’ve gotten from Target today, showing that our worst fears about inflation and supply chain cost pressures.”
“We’re used to big positive surprises. For now, the revenues are likely to remain intact, but if the earnings fall apart there’s potential downside to the market beyond the somewhat random definition of a bear market.”
CHUCK CARLSON, CHIEF EXECUTIVE OFFICER, HORIZON INVESTMENT SERVICES, HAMMOND, INDIANA
“I think it’s economic fears. You have got a host of retailers that are coming out with results that are not great, and that is one more indication of perhaps a slowdown in the economy.”
“I just wonder if people are starting to really get pinched by fuel costs – both businesses as well as consumers… When you are paying north of $5 for a gallon of gas, that’s a hammer and that’s a hammer on everybody.”
(Compiled by the Global Finance & Markets Breaking News team)