Shares fell on Wednesday, a drop that ended a brief respite for investors after Target became the second major retailer to report inflation taking its toll on its profitability, pushing Wall Street’s focus back this year to one of his greatest concern came.
The S&P 500 fell 3 percent by noon, a sharp reversal from recent gains that had lifted the benchmark by more than 4 percent in recent days. The tech-heavy Nasdaq composite fell 3.6 percent.
Retailers, who report gains this week, led the decline. Target plunged 25 percent, making it by far the worst performer in the S&P 500 after the company reported Wednesday that high costs impacted earnings in its last quarter and lowered its forecast for earnings for the year.
The warning echoed a similar report from Walmart, which said Tuesday that earnings in the quarter fell 25 percent from a year ago and also made a grim forecast. It fell 7 percent on Wednesday after falling more than 11 percent the day before.
Other retailers also recorded sharply lower. Costco fell 12 percent; Dollar Tree fell about 17 percent; and Best Buy fell 9.9 percent.
Retailers are being squeezed by higher fuel costs after Russia’s invasion of Ukraine, and the sanctions imposed or proposed as a result have fueled oil prices. On Wednesday, oil prices were slightly lower at about $110 a barrel, but that price is still well above the crude futures traded at about $78 a barrel late last year.
Both Target and Walmart said their sales actually increased slightly as consumers continued to spend even as prices rose across the economy. On Tuesday, the government said US consumer spending continued to rise in April. That allayed investor concerns about the health of the economy, but the bullish sentiment did not last long.
“Consumers are weathering the inflation hit,” Fiona Cincotta, senior financial markets analyst at Forex.com, wrote in a note. “However, retailers are not doing very well in navigating the 40-year high inflation.”
Large price swings have become a feature of Wall Street trading in recent weeks as investors struggle to cope with the coming uncertainty with rising prices, and the Federal Reserve is raising interest rates quickly to curb rapid inflation. Economists worry that the economy is at risk of a recession, as consumer activity could decline as borrowing costs rise.
Recent volatility has come with the S&P 500 hovering just above bear market territory, or down 20 percent from its most recent high. That term reflects an ongoing shift in tone among investors. Through Tuesday, the index was about 14 percent below its January 3 high.