On Tuesday, Wall Street was set to open lower, after Target Corp cut its quarterly margin forecast, thereby raising concerns about a slowdown in demand because of inflation. Retail shares consequently suffered, as there was a 7.6% fall in Target shares in pre-market trading. According to the big-box retailer, it would pull back on stocking discretionary items that have a high margin and would need to offer deeper discounts. There was a 3% fall in shares of Walmart Inc., Target’s competitor, while other rivals also fell between 1.5% and 3.5%. These included Best Buy Co Inc., Costco, Dollar General, Macy’s Inc. and Nordstorm Inc.
Market analysts said that margin pressure is not surprising when demand is cooling off and inflation is rising. The numbers of the first quarter were already showing this trend and now the pressure is intensifying because it is not just a one-quarter matter. The risk of a slowdown in growth is rising, as there was a drop in mega cap growth stocks as well. This was due to US Treasury yields that were hovering near highs of three and a half weeks just before the inflation numbers are due on Friday.
There was a decline of 2.6% in both Amazon.com and Tesla Inc. If the consumer price index data turns out to be a hot one, it would increase the chances of the Federal Reserve to hike the interest rates continuously in the second half of 2022. This will happen at a time when consumer spending is resilient and the labor market is also high. A 50-basis point increase has already been priced in by money markets in a policy meeting of the Fed scheduled for next week, followed by similar increases in July as well as September. There was also a fall in global shares because of a surprise increase of 50-basis points in Australia.
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It increased worries about policy tightening, while prices of oil were just below the $120 mark. There was a 0.73% fall in Dow e-minis, or 239 points, while a 0.87% decline was recorded in S&P 500 e-minis, or about 36 points. As for Nasdaq e-minis, they dropped by 1.16%, or 146 points. A drop of 1.5% was also recorded in Apple Inc. after EU lawmakers and countries agreed that a single mobile charging port should be made for smartphones, cameras and tablets. Apple’s launch of Apple Pay later, which is a buy now pay later service, saw Affirm Holdings Inc. and Block Inc. fall 3.9% and 2.9%, respectively.
There was an 11% increase in Kohl’s Corp, as it was talking to Franchise Group Inc., about a potential sale to the retail store operator. It would put the value of the department store chain at about $8 billion. There was an increase in the CBOE volatility gauge for the third consecutive day. This is considered a fear gauge for Wall Street and had gone up by almost 26.08 points.
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