Wall Street retreats after yesterday’s rebound, worries about consumption

The New York Stock Exchange fell again on Wednesday, releasing part of the gains from the substantial rebound of the previous day, due to profit taking and the announcement of disappointing results of companies in the distribution sector which worry about consumption , the engine of the American economy.

Around 3:00 p.m. GMT, the Dow Jones index lost 1.61% and the Nasdaq, with strong technological coloring, fell 1.89%, while the S&P 500 lost 1.85%.

On Tuesday, the indices had rebounded, driven by technology and the attraction of bargains, after seven weeks of losses for the Nasdaq. The Dow Jones gained 1.34% to 32,654.09 points, the Nasdaq jumped 2.76% to 11,984.52 points and the S&P 500 advanced 2.02% to 4,088.85 points.

“Stocks retreat early in the session as corporate results highlight the persistence of inflation,” summed up analysts at Wells Fargo.

The spectacular fall in Target supermarket shares (-25% to $160) — a rare magnitude of depreciation in the retail sector — held investors’ attention as it showed how much price increases are beginning to weigh on consumption and corporate profits.

The chain accused a halving of its quarterly profit and its boss, Brian Cornell, complained of cost increases. He warned that sales will fall in 2023. Fuel and freight costs have jumped by a billion dollars for the group.

“By saying this, distribution bosses will face a huge loss of confidence!”, Worried Gregori Volokhine of Meeschaert Financial Services. “This is the biggest fall in the stock since 1987,” said the analyst.

Investors were also digesting statements on Tuesday from Jerome Powell, the head of the US central bank (Federal Reserve, Fed), which, as National Securities’ Art Hogan put it, “left no doubt about the Fed’s resolve tame inflation by raising rates or doing something else”.

“Mr. Powell also acknowledged that it would be painful – perhaps with a small increase in the unemployment rate – but that it was worth it, because he believes that price stability is the bedrock of the economy,” said the analyst again.

The president of the monetary institution affirmed, during a conversation with the Wall Street Journal, that the Fed would tighten its monetary conditions sharply until there was “clear evidence” that inflation was slowing.

For Peter Cardillo of Spartan Capital, “the decline in the indices reflected a combination of factors, including profit taking by investors, bad news from companies and a poor indicator with the fall in housing starts”.

But the analyst believed that the market may have reached “a temporary low lately and continue the rebound that began on Tuesday”.

“There’s already a lot of negativity priced in by the market, from inflation to high interest rates to a possible recession to weaker corporate earnings,” Cardillo said.

“I would not be surprised if the market recovers to continue the rebound,” hoped the analyst.

The collapse of Target, a chain of mid-range stores, echoed the disappointing results of Walmart, the number one discount retailer more popular among lower incomes, which worried other analysts more.

“People are buying expensive products less and less and are increasingly turning to white label products,” noted Gregori Volokhine.

“Low incomes are Walmart, middle incomes are people who buy at Target, so it’s going up the pyramid,” noted the Meeschaert analyst.

“The reality is not very good for consumption, we have to face it,” he added.

Another store brand, Lowe’s, specializing in home furnishings, was sanctioned by investors (-3% to 188 dollars), after also announcing mixed results with a decline in quarterly sales of 3%.

In China, Premier Li Keqiang called for “urgent” support for the country’s struggling economy. He urged local authorities on Wednesday to “strengthen their sense of urgency” and launch new measures to support a national economy battered by anti-Covid restrictions.