Wednesday May 18th


Stock futures fall as more companies warn about higher costs, Target shares crater

U.S. stock index futures fell on Wednesday morning 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. Futures for the Dow Jones Industrial Average shed 167 points, or 0.5%, with the average set for its first loss in four days. S&P 500 futures traded 0.7% lower, while Nasdaq 100 futures slipped 1%. Those losses come after a disappointing earnings report from Target. Shares tumbled more than 24% in premarket trading 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 2% in premarket trading Wednesday. “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. Other retailers took a hit in premarket trading Wednesday on the back of Target’s quarterly earnings miss. Best Buy’s stock price dropped more than 6% in premarket trading, Dollar General’s fell more than 6% in premarket trading and Dollar Tree’s declined more than 5% in premarket trading. Lowe’s shares fell more than 2% in premarket trading after missing sales expectations in its first quarter report as shoppers bought fewer supplies for outdoor projects. 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 have stabilized over the last 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 now gained 4% since Thursday’s close. Despite the recent comeback, the S&P 500 is down 14% for the year, while the Nasdaq Composite is off by 23%. 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 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. However, some recent economic data, including the jobs report and retail sales data from April, still show the U.S. economy growing. “There’s a big difference between corrections in the equity markets and outright bear markets,” said Matt Stucky, a senior portfolio manager at Northwestern Mutual Wealth Management. “The difference being bear markets are almost always sort of associated with some kind of recessionary macroeconomic environment, or at least an inevitable one in the forecast horizon over the next six-to-12 months. For us, as we sit here today, we just don’t see that.” Shares in Asia-Pacific were mixed on Wednesday, following overnight comments from U.S. Federal Reserve Chairman Jerome Powell, who said he’s resolved to raise rates until inflation comes down. The Nikkei 225 in Japan rose 0.94% on the day to 26,911.20 while the Topix index climbed 0.96% to 1,884.69. Elsewhere, mainland Chinese stocks closed lower, with the Shanghai Composite down 0.25% to 3,085.98 while the Shenzhen Component dipped 0.197% to around 11,208.08. The Hang Seng index in Hong Kong sat fractionally lower, as of its final hour of trading. South Korea’s Kospi finished the trading day 0.21% higher at 2,625.98. Oil prices rose on Wednesday on expectations that easing COVID-19 restrictions in China will boost demand and as supply concerns grew. Brent crude was up 0.65% at $112.66 per barrel, while U.S. West Texas Intermediate (WTI) crude climbed 1% to $113.52, reversing some of the previous session’s losses. Gold futures were flat Wednesday as the dollar recovered slightly, piling pressure on greenback-priced bullion along with firm Treasury yields and an aggressive inflation stance by the U.S. Federal Reserve chief. Futures were down just 0.04% at $1,818.10 per ounce. Spot gold, however, climbed 0.3% to $1,819.78.