Top U.S. retailers reporting results lower than expected and a growing inventory problem was a bad signal for markets and a warning on inflation.
Investors wiped almost 25% off Target shares on Wednesday after the firm reported its sales almost halved in the first quarter, falling by far Wall Street’s expectations. Target’s bad results came one day after rival Walmart also reported a 17% drop.
Alarm spread to other companies in the sector. Shares of Best Buy and Macy’s fell almost 11% on Wednesday, while Costco lost 12%.
On Wednesday, US shares recorded their biggest one-day drop since the early days of the Covid pandemic in 2020.
The turmoil in markets came a day after Federal Reserve Chair Jerome Powell pledged the central bank would increase interest rates as high as needed to tame inflation.
Both retail companies said consumers were not spending on high-margin discretionary items, but spending more money on essential products.
“Retailers are starting to reveal the impact of eroding consumer purchasing power,” said Paul Christopher, head of global market strategy at the Wells Fargo Investment Institute. “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”.
Bad results from the top U.S. retailers also hit shares in UK companies that rely on consumer spending, with Tesco falling 5%.