Target, Walmart’s inflation warning bad omen for stocks, economy
YTD: The Dow is off 13%, the S&P 18% and the Nasdaq Composite 27%
Walmart and Target, two of the nation’s largest retailers, confirmed this week that inflation headwinds are intensifying.
"The strength of the consumer will be tested as both Walmart and Target signal rising pricing pressures are not easing," wrote Edward Moya, Senior Markets Analyst, Oanda.
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Target shares, on Wednesday, dropped 25% the most since 1987 contributing to the Dow Jones Industrial Average’s 1,164.52 point skid, pushing the benchmark to its lowest level since March 2021.
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"Growth was challenged by unusually high costs, resulting in profitability well below what we expected to be and where we expect to operate overtime," said Target CEO Brian Cornell on the company’s earnings call Wednesday. Adjusted earnings fell 40.7% compared to the year-ago period to $2.10 per share.
The S&P 500 is also lingering at the lowest since March 2021, as tracked by Dow Jones Market Data Group.
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The day prior, Walmart shares got whacked to the tune of 11%, also the worst day since 1987, after CEO Doug McMillon delivered a sobering outlook.
"On the food side, we're seeing double-digit inflation and I'm concerned that, that inflation may continue to increase" he said in response to a question on the retailer’s quarterly earnings call. Adjusted earnings fell 23% to $1.30 per share.
Overall consumer inflation hit 8.3% in April, a 40-year high, with food and fuel costs even higher. Annually, the price of unleaded gas is up 44%, eggs 22.6% and milk 14.7%, as tracked by the Bureau of Labor Statistics Consumer Price Index.
Rising costs coupled with a pullback in consumer spending, which accounts for about 70% of the U.S. economy, may cement a U.S. recession, Jeff Sica of Circle Squared Alternative Investments told FOX Business.
"What we saw out of these two major retail earnings reports is that the consumer is about to break and that the consumer cutting back on spending with less confidence in the future indicates where we're headed, I believe we're already in the recession, but it indicates that we're headed into a deeper recession," said Sica.
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The U.S. economy surprisingly contracted 1.4% in the first quarter, another back-to-back dip, which would confirm a recession. Currently, estimates for second-quarter economic growth remain at 2.4%, as tracked by GDPNow, the Federal Reserve Bank of Atlanta’s real-time tracker.