Dow skids almost 1,200 points, books worst day since June 2020 on stagflation fears, higher costs eroding profits
By Joy Wiltermuth and Frances Yue
Dow, S&P 500 record worst daily plunge since June 2020
The Dow and S&P 500 on Wednesday booked their worst daily plunges in about two years, after quarterly retailer results confirmed higher costs for fuel and wages are eating into profits, and U.S. Treasury Secretary Janet Yellen warned of global stagflation taking root.
All 11 main industry groups in the S&P 500 index were lower, with consumer stocks leading the retreat.
How did stock indexes perform?
On Tuesday, the Dow Jones Industrial Average gained 431.17 points, or 1.3%, to close at 32,654.59, rising for a third straight day. The S&P 500 climbed 80.84 points, or 2%, to finish at 4,088.85. The Nasdaq Composite jumped 321.73 points, or 2.8%, to end at 11,984.52.
What drove markets?
Wall Street was caught in its worst daily plunge in two years Wednesday, this time sparked by signs of price pressures at big-box retailers that are eating into corporate margins.
Selling hit the consumer sectors hardest, with
"Obviously, the pressures we are seeing are from Target, following Walmart, in acknowledging price pressures," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, by phone.
"I think that people involved in the market are now going to be even more concerned with inflation, and the pressures that it brings to things like margins," he said. "But sometimes, it's also run for the hills and ask questions later."
Pavlik also said there wasn't much conviction in the market. "As someone who might be willing to do some buying of quality companies, why should I step in now, when prices are likely still going to go down?"
Shares of Lowe's Cos. LOW fell on mixed results from the home-improvement retailer. TJX Cos. (TJX) gained 7.1% Wednesday after the TJ Maxx operator reported double-digit percentage growth in earnings for its first quarter. Cisco Systems Inc. CSCO will report after the close.
Read:Why are stocks falling? Fragile 'bear market' bounce underlines investor jitters
Goldman Sachs CEO David Solomon also came out with a recession warning as the Fed raises rates and beings shrinking it balance sheet to move against high inflation, in a CNBC interview Wednesday. Economists at the bank see a roughly 30% chance of a recession in the next 12 to 24 months.
"As the selloff intensifies and leads the S&P 500 lower towards the 16 times forward earnings level and below into the 15 times range," said Quincy Krosby, chief equity strategist for LPL Financial, "the market may be close to discounting slower growth, a Fed still continuing to raise interest rates and unwind its balance sheet---but not yet a recession," in emailed comments.
U.S. Treasury Secretary Janet Yellen on Wednesday warned of fallout from Russia's war in Ukraine that could spell stagflation for the global economy, as higher food and energy prices depress output and spending around the world, while speaking ahead of a Group of Seven finance ministers meetings in Bonn.
Investors also were taking a fresh look at comments from Powell, who on Tuesday spoke of possible "pain" for Americans as the central bank moves resolutely to bring down inflation by raising interest rates. He was speaking at The Wall Street Journal's Future of Everything event.
"What concerns me is that the Fed is limited in its tools to tackle the particular type of inflation we are facing. They're kind of using a hammer to put in a screw," Kevin Philip, partner at Bel Air Investment Advisors, said in an interview.
Read:Fund managers' cash pile is the biggest since 2001, says Bank of America
On U.S. economic data, construction of new houses fell slightly in April for the third month in a row. U.S. housing starts slipped 0.2% in April to an annual rate of 1.72 million units. U.S. housing permits fell 3.2% in April to an annual rate of 1.82 million units.
See: Looking to buy a house? Builders are betting you'll have to rent instead
Philadelphia Fed President Patrick Harker was also set to speak at 4 p.m. Eastern Time.
Which companies were in focus?
How did other assets trade?
---Barbara Kollmeyer contributed reporting to this article.
-Joy Wiltermuth
(END) Dow Jones Newswires
May 18, 2022 16:31 ET (20:31 GMT)
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