Sell-off on Wall Street gains steam, with the Dow falling more than 600 points

Sell-off on Wall Street gains steam, with the Dow falling more than 600 points

U.S. stocks fell Wednesday after another major retailer warned of rising cost pressures, confirming the fears over inflation that have sent major benchmarks to big losses so far this year.

The Dow Jones Industrial Average shed 653 points, or 2%, with the average set for its first loss in four days. S&P 500 traded 2.3% lower, while the Nasdaq Composite slipped 2.4%.

Those losses come after a disappointing earnings report from Target. Shares tumbled more than 24% Wednesday after Target reported first-quarter earnings that were much lower than Wall Street estimated because of higher costs for fuel and compensation. The retailer also saw lower-than-expected sales for discretionary merchandise like TVs.

Target’s report comes right after Walmart on Tuesday posted earnings that fell short of expectations as it too cited higher fuel and labor costs. Walmart shares ended Tuesday lower by 11%. They were down another 5% on Wednesday.

“The consumer is challenged,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “We started to see at the end of the year that consumers were turning to credit cards to pay for the rise in food prices, rise in energy prices, and that’s actually gotten much worse… This is going to hurt those bellwether retail places and Walmart tends to be one of them.”

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Other retailers took a hit on the back of Target’s quarterly earnings miss. Best Buy’s stock price dropped more than 8%, Dollar General’s fell more than 11%, and Dollar Tree’s declined more than 17%. Shares of Macy’s dropped 9%, while shares of Kohl’s fell more than 10%.

Lowe’s shares fell more than 3% after missing sales expectations in its first quarter report as shoppers bought fewer supplies for outdoor projects.

“Any company that relies on households and discretionary purchases will likely suffer this quarter because a lot of discretionary income has been funneled to food and energy prices,” said Jack Ablin, founding partner of Cresset Capital.

Meanwhile, TJ Maxx-parent TJX Companies was a notable retail outlier as shares surged 9% after the department store chain reported an earnings beat.

Wednesday’s market reversal comes after shares had been mounting a comeback off the year’s lows. On Tuesday, the Dow rose 431 points, or 1.3%, while the S&P 500 gained 2% and the Nasdaq Composite climbed nearly 2.8%.

The Dow has declined for seven straight weeks, but stocks had stabilized over the previous three trading sessions. Last week, the S&P 500 fell to the brink of a bear market — or 20% below its record high — but the index has recovered slightly since then.

Despite the recent comeback, the S&P 500 is down 16% for the year, while the Nasdaq Composite is off by 25%.

Gas prices have steadily marched higher, contributing to inflationary pressures seen across the economy. The national average for a gallon of regular gasoline hit a record $4.567 on Wednesday, according to AAA. Prices are 48 cents more than a month ago, and $1.52 more than what consumers paid last year.

Every single state is now averaging above $4 per gallon, with some states paying much more. In California, the statewide average has crossed $6.

The yield on the benchmark 10-year Treasury note briefly topped 3% on Wednesday morning as investors weighed the prospects of tighter monetary policy.

Stocks and other risk assets have been pressured by inflation and the Federal Reserve’s attempt to tamp down price increases through rate hikes, which has led to concerns about a potential recession. Fed Chair Jerome Powell said at a Wall Street Journal conference on Tuesday that “there won’t be any hesitation” about raising rates until inflation is under control.

— CNBC’s Pippa Stevens contributed to this report.