Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Investors jolted as U.S. retailers show inflation hitting consumers

Economy May 19, 2022 10:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: Shoppers are seen wearing masks while shopping at a Walmart store, in North Brunswick, New Jersey, U.S. July 20, 2020. REUTERS/Eduardo Munoz/File Photo 2/2

By Sinéad Carew

NEW YORK (Reuters) -Evidence of red-hot inflation seeping into the American economy is sending a chill through investors after major U.S. retailers reported people are cutting back on buying bigger-ticket items as they just try to get by.

Investors wiped almost 25% off Target (NYSE:TGT) shares on Wednesday after its profit halved, and it fell another 3.2% on Thursday morning. Walmart (NYSE:WMT) was down 1.3% Thursday after already falling more than 17% in the two sessions after it reported weak results early on Tuesday.

Target's earnings showed consumers spending more on food and household essentials instead of high-margin discretionary items, while Walmart showed shoppers had moved to buy lower-margin basics.

On Thursday, Kohl's (NYSE:KSS) was up 1.1% after falling 11% on Wednesday as the department store company cut its full-year earnings forecast, warning that red-hot inflation is starting to erode profit margins and consumer spending.

BJ's Wholesale Club, which fell 16% on Wednesday, was up 10.7% on Thursday after it beat Q1 financial expectations, saying membership rose as customers searched for value due to soaring prices.

On Tuesday, Federal Reserve Chair Jerome Powell pledged the U.S. central bank would raise interest rates as high as needed to kill the surge in inflation.

The S&P 500 was last down 0.2%, leaving it down 18% year-to-date and 18.6% below its Jan. 3 record close, after closing down 4% in Wednesday's broad sell-off. [.N]

"Retailers are starting to reveal the impact of eroding consumer purchasing power," Paul Christopher, head of global market strategy at Wells Fargo (NYSE:WFC) Investment Institute, said on Wednesday after his firm forecast a mild recession around year-end into early 2023.

"The consumer's ability to spend is eroding at a faster pace than it was a month or two ago. We think that pace is going to accelerate further," he said.

The S&P 500's consumer discretionary index bounced back slightly, last up 0.9% after losing 6.6% on Wednesday in its deepest one-day sell-off since March 2020 and was still off more than 30% year-to-date, putting it on track for its weakest year since 2008.

Cantor Fitzgerald said it was unwinding its expectation for a short-term bounce in equities and that if there is a lift, it would likely be shallow and "not worth playing."

"The (Wal-Mart/Target) numbers are very concerning as they show the consumer is reducing discretionary purchases while company margins return to pre-pandemic levels," said Eric Johnston, head of equity derivatives and cross asset at Cantor Fitzgerald.

While investors have been worried for some time about inflation, the latest results pile on worries about the impact of inflation on the consumer, said Ryan Detrick, chief market strategist at LPL Financial (NASDAQ:LPLA).

However, the sell-off came the day after data showing U.S. retail sales rose strongly in April as consumers bought more motor vehicles amid supply improvements along with increased spending at restaurants despite high inflation, souring consumer sentiment and rising interest rates.

Cliff Hodge, chief investment officer at Cornerstone Wealth, said the narrative was "shifting from inflation scare to recession scare."

Chuck Carlson, chief executive officer at Horizon Investment Services, said retailer results appeared to be potentially "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,” Carlson said.

Investors jolted as U.S. retailers show inflation hitting consumers
 

Related Articles

Asian Stocks Up, Following Wall Street Gains
Asian Stocks Up, Following Wall Street Gains By Investing.com - Jun 26, 2022

By Zhang Mengying Investing.com – Asia Pacific stocks were up on Monday morning after Wall Street rebounded strongly at the end of last week despite fears of prolonged inflation...

Dow Futures Trade Lower After Positive Week
Dow Futures Trade Lower After Positive Week By Investing.com - Jun 26, 2022 8

By Oliver Gray  Investing.com - U.S. stock futures were trading lower during Sunday's evening deals, easing from a major rebound last week as investors monitored growing recession...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Alan Rice
Alan Rice May 19, 2022 11:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No pain, no .......
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email