Stock markets on Wall Street had their worst day in almost two years, after a series of lackluster news in the US retail sector and statements by the head of the Federal Reserve (FED), Jerome Powell, who said that they will not hesitate to stop economic growth and lower inflation levels.
The Dow Jones index -which brings together the main industrial companies- collapsed 3.57%while the technological Nasdaq sank 4.73% and the S&P 500 -which make up the 500 largest companies in the United States- lost 4.03% and it was again below 4,000 points, at 3,924.18 units.
All sectors of the S&P 500 went into negative territory, while the big names in technology also fell: Amazon lost 7.16%, Apple 5.64% and Netflix 7.02%.
The sharp drop in the Target supermarket stock (-24.87% to $161.73) – a rare plunge in the retail sector – drew all the attention of investors, as it shows how the rise in Prices begin to weigh on consumption and company profits.
Target president Brian Cornell complained about cost hikes arguing that it was what led to halving its profits in its last balance sheet and warning that sales would drop in 2023.
“Target put out these horrible earnings prospects. And then the market sell-off fed back and the more the indices went down, the more the market worried about future earnings, operating margins and recession,” LBBW’s Karl Haeling told AFP.
Added to this are the statements of Powell in an event of The Wall Street Journal, in which he assured that the objective of the FED is “to bring inflation to 2%” and “to restore price stability”, after the latest inflation data exceeded 8 year-on-year points, the highest in four decades.
“It will be challenging to do it and we have to slow growth to do it,” said Powell, who admitted that “the idea is that growth has to go down so that inflation falls” since “if we raise interest rates that it will affect the financing conditions and that affects the economy”.
Still, he noted that while “there might be some pain involved in restoring price stability,” his main concern is “maintaining a strong labor market, in which unemployment is low,” and that while he “might not is a perfect job market, yes it will be strong.
For City index financial market analyst Fiona Cincotta, “shares are being hit as fears of inflation and weak earnings affect market confidence.”
“While strong retail sales helped buoy stocks yesterday, disappointing quarterly numbers from retail giants Target and Lowe’s are causing fear in the market today. Yesterday’s data suggests consumers are weathering the blow from inflation for now.” However, retailers are not doing as well in coping with rising input costs,” Cincotta said in an email reviewed by Bloomberg.
Ryan Detrick, chief market strategist at LPL Financial, said: “Concerns about inflation and a hawkish Fed are nothing new, but now there are concerns about profit margins and the impact of inflation. in the consumer, and you have the recipe for a great day off”.
“What we’re seeing this week from big retailers could be a clue as to what a downturn might feel like for markets in general,” said Mike Bailey, director of research at FBB Capital Partners.
The main European stock markets closed lower on Wednesday, affected by the sharp fall on Wall Street in the second part of the session due to fears of the consequences of inflation for companies that were recovering.
Paris fell 1.20%, Frankfurt 1.26%, Milan 0.89% and London 1.07%. Only Madrid closed in balance and rose 0.01%.