Wow, after so much optimism yesterday everything just fell through the floor today. Even after yesterday’s very positive retail sales report everything went just so sour after Target collapsed losing an earth-shattering 25% of its capitalization in a single day. But there were clues yesterday with retail giants from Costco to Dollar Tree (including Target) falling between 1 and 3% and Walgreens a precipitous 11%.  The devastation continued today throughout the retail sector which dropped over 8% in a single day as investors panicked over the prospect of eroding consumer purchasing power. The market in trying to assess how bad it’s going to get just fled to the exits, the Dow down nearly 1200 points, the Nasdaq down 566, even the S&P with rare triple-digit losses.  

(I’d say that what really needs to be assessed is what changed so much since yesterday when April retail sales data showed that purchasing power was as strong as it’s ever been.)  Adding to the rush was Wells Fargo predicting a mild recession by year-end.  There are some positive signs:  1) As today’s expert put it, “The market is fearful of the next six months. We may find out that it doesn’t need to be this fearful, that it does tend to overreact to the downside;” and 2) Contrary to logic, the VIX actually rose today after falling for the last six sessions.  And possibly #3) Volume was below average at 12.5 billion.  And I’ll add a #4) We have certainly seen this happen a number of times already in the recent past.  And it comes back.  Stay tuned. 

Wed  May 18, 2022  4:55 PM

Wall Street ends sharply lower as Target and growth stocks sink

By Noel Randewich and Amruta Khandekar

DJ: 32,654.59  +431.17       NAS: 11,984.52  +321.73       S&P: 4,088.85  +80.84     5/17

DJ: 31,490.07  -1164.52      NAS: 11,418.15  -566.37        S&P: 3,923.68  -165.17    5/18

May 18 (Reuters) - Wall Street ended sharply lower on Wednesday, with Target losing around a quarter of its stock market value and highlighting worries about the U.S. economy after the retailer became the latest victim of surging prices.  It was the worst one-day loss for the S&P 500 and Dow Jones Industrial Average since June 2020.  Target Corp's (TGT.N) first-quarter profit fell by half and the company warned of a bigger margin hit on rising fuel and freight costs. Its shares fell about 25%, losing about $25 billion in market capitalization, in their worst session since the Black Monday crash on Oct. 19, 1987. read more  The retailer's results come a day after rival Walmart Inc (WMT.N) trimmed its profit forecast. The SPDR S&P Retail ETF dropped 8.3%. read more

"We think the developing impact on retail spending as inflation outpaces wages for even longer than people might have expected is a principal factor in causing the market sell-off today," said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. "Retailers are starting to reveal the impact of eroding consumer purchasing power."  Interest-rate sensitive megacap growth stocks added to recent declines and pulled the S&P 500 and Nasdaq lower. Amazon (AMZN.O), Nvidia (NVDA.O) and Tesla Inc (TSLA.O) dropped close to 7%, while Apple (AAPL.O) fell 5.6%.

"The cons outweigh the pros for growth stocks at this particular moment, and the market is trying to decide how bad it's going to get," said Liz Young, head of investment strategy at SoFi. "The market is fearful of the next six months. We may find out that it doesn't need to be as fearful as this, and markets do tend to overreact on the downside."  All of the 11 S&P 500 sector indexes declined, with consumer discretionary (.SPLRCD) and consumer staples (.SPLRCS) leading the way lower, both down more than 6%.

Rising inflation, the conflict in Ukraine, prolonged supply chain snarls, pandemic-related lockdowns in China and monetary policy tightening by central banks have weighed on financial markets recently, stoking concerns about a global economic slowdown.

Wells Fargo Investment Institute on Wednesday said it expects a mild U.S. recession at the end of 2022 and early 2023. read more  Federal Reserve Chair Jerome Powell vowed on Tuesday that the U.S central bank will raise rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy. read more  Traders are pricing in 50-basis point interest rate hikes by the Fed in June and July.

Unofficially, the S&P 500 declined 4.04% to end the session at 3,923.68 points.  The Nasdaq declined 4.73% to 11,418.15 points, while Dow Jones Industrial Average declined 3.57% to 31,490.07 points.  The S&P 500 is down about 18% so far in 2022 and the Nasdaq has fallen about 27%, hit by tumbling growth stocks. Almost two-thirds of S&P 500 stocks are down 20% or more from their 52-week highs, according to Refinitiv data.

Wall Street's recent sell-off has left the S&P 500 trading at around 17 times expected earnings, its lowest PE valuation since the 2020 sell-off caused by the coronavirus pandemic, according to Refinitiv data.

The CBOE volatility index (.VIX), also known as Wall Street's fear gauge, rose to 31 points after falling for six straight sessions.

Volume on U.S. exchanges was 12.5 billion shares, compared with a 13.4 billion average over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 5.09-to-1 ratio; on Nasdaq, a 3.52-to-1 ratio favored decliners.  The S&P 500 posted one new 52-week high and 37 new lows; the Nasdaq Composite recorded 25 new highs and 242 new lows.